Interview with Dustin Dolginow: Partner at Maiden Lane Edit this post

In our fifth episode, we interview Dustin Dolginow and learn how he picks investors to back on AngelList.

Dustin is a General Partner at Maiden Lane and previously worked in venture capital at Accomplice. Maiden Lane is a fund that invests in syndicate deals and has invested in over a hundred companies since 2014. Some of Maiden Lane's existing investments include Beepi, Checkr, Cruise Automation (acquired by GM) and Luxe.

Here are a few of my favorite lessons from this interview:

  • The best Syndicate Leads can strongly defend their opinions. Challenging an investor can help you evaluate them; the best investors are able to articulate and defend their opinions. Dustin describes what makes good leads at 28:00 and the common mistakes that cause leads to fail at 51:30.

  • Founders make great seed-stage investors. At the earliest stages, having experience as an operator helps you evaluate startups. At the later stages, being a great investor involves more tedium and governance—something that is generally less interesting to operators.

  • Venture investing is all about trust. Because results take years, investors are often judged on whether their partners and/or LPs trust them. At 21:50, we learn why trust helped Maiden Lane quickly raise it's first fund, but the importance of trust is a recurring theme throughout this interview.

  • Online funds have more flexibility than traditional funds. Maiden Lane has small number of partners but it backs dozens of Syndicate Leads. This means a more diverse group of people control decisions around which companies to invest in, and each of those investors has more personal flexibility to alternate between periods of active investing.

Learn more about Maiden Lane's investments on AngelList and follow Dustin on Twitter.

Here's a full transcript of the interview:

Tyler Willis: [00:10] Hi, everybody. I'm Tyler Willis. I'm an entrepreneur and an angel investor from San Francisco. This year, I'm your host for Season 1 of AngelList Radio. In our first season, we're interviewing investors and learning how they invest and what's made them successful.

[00:23] Today, I'm joined by Dustin Dolginow, partner at Maiden Lane, which is the first online fund. We'll talk a little bit more about what an online fund is and what that means as we get into the interview.

[00:32] Dustin, thanks for joining us.

Dustin Dolginow: [00:34] Thank you for having me.

Tyler: [00:36] Before we kind of get into the tactical side of things, what's been your career to this point? How did you get to today and Maiden Lane?

Dustin: [00:43] Yeah, I started my career on Wall Street, was lucky enough to watch the world's biggest bankruptcy so far at Lehman Brothers. At the end of it, didn't think a business school needed another white guy from Wall Street, and was way more interested in starting a company.

[00:57] Spent a year trying to build a company, get it off the ground. It was, in retrospect, a total failure. But it did lead me to my gig in venture.

[01:06] I wasn't looking for the role at the time, but my partner Jeff found me, we clicked, and he hired me. Little did I know I was joining a firm that frankly was amidst massive change, which was really exciting, and moving towards a seed lead strategy, reshuffling the partnership, and ready to rethink venture.

[01:30] Not too long into it, we made an investment into a company called AngelList, and it gave me the opportunity to reimagine what venture could be if you moved it online.

[01:39] Of course, it took some turns to get there, namely passing the Jobs Act in 2012 and the team creating Syndicates. But when Syndicates launched in September 2013, we immediately looked at each other and said, "Hey, let's go raise this fund, a fund specifically for syndicates, and really only build it online, and see what that could mean and what we could do differently."

[02:01] So, started raising that in October of 2013. Then we started putting it to work in April of last year.

Tyler: [02:09] Who are the Maiden Lane partners? Who are your partners there?

Dustin: [02:12] There are four of us on the investment committee, Naval, Kevin, Jeff, and myself. Kevin Law is from AngelList. Naval is from AngelList, and Jeff and myself from Accomplice.

[02:25] But I'm the only one who works on it day-to-day. The four of us review all the deals together and bring on the leads together, but I kind of show up and operate it daily.

Tyler: [02:36] Does Maiden Lane do direct investment, or does it do indirect investment, backing syndicate leads exclusively?

Dustin: [02:42] When we started the fund, just to show you how much has changed even in the last 18 or 24 months, we structured it. The paper said we would do about half online sort of traditionally, and then half online on AngelList behind syndicate leads.

[02:58] We really had no idea where syndicate would go, how quickly it would grow, or if leads would really engage and bring in interesting deals.

[03:07] About six months into it, we realized there was no need to act like a traditional seed fund, like, "Let's just go into this and really be an online fund, and exist in that universe, and define what that means." Outside of probably five direct investments, where there just wasn't a fit in terms of finding a syndicate lead or doing it online, we just did it offline. Everything has been done behind syndicate leads on AngelList.

Tyler: [03:32] I want to take you back to the start of your career, before you got into Maiden Lane. Obviously, we'll spend the bulk of our time talking about Maiden Lane. I think it's pretty interesting. Let's start with the company. You started a company, and you spent a year there. What was that company? What were you trying to do? What was that first introduction into the technology business space like?

Dustin: [03:55] I grew up in a retail jewelry store. My parents were literally mom-and-pop jewelry store runners. I grew up working there, and one of the big things that you realize when you work at a jewelry store is almost everything is done on credit card. The average store will spend hundreds of thousands to millions of dollars a year on credit card fees.

[04:12] Fast forward to when I went to Wall Street, I got to see how the credit card system actually worked. Most people don't realize, but securitization started with credit cards, and it's still, to this day, probably the best product for securitization.

[04:25] Most people are excited by credit cards, because they create the income, but no one really gives a crap about the merchant, so they kind of get screwed. Hence, now we see Square. But Square wasn't around then. It was pretty clear that both through the financial crisis and the changes in mobile that a new business was going to be built in the credit card space, both accepting and paying.

[04:49] It's probably played out differently than I thought, but being in New York, not being technically trained and really just having an idea for a product, that first year was basically a lesson in product development and management, for someone who'd been trained more to be a financial analyst.

[05:07] I wasn't really in the right spot, in retrospect, to see the opportunity for what it was, partly because I wasn't out here and I couldn't see the future of mobile, and then partly because I had never thought about a product from the user's experience. I was thinking about it backwards. I wanted to design it from the guts forward.

[05:28] It took me about a year to fully, really feel that lesson, but it's something now that actually informs all the investing that I'm doing. I start and end my analysis around product. That's how I connect with teams. That's how I frame the opportunity. I usually don't spend a ton of time on market analysis or mechanics, until we're ready to talk about that through the lens of product.

[05:49] Once we start monetizing, of course, you think about CAC, LTV, and those things, but product is where I live and die in my investing theses.

Tyler: [05:58] Got it. Do you have a particular thesis or set of theses that you've set out, or is this more opportunistic as you're seeing opportunities come down the pipeline?

Dustin: [06:09] The biggest these that I wake up and think about the most is that venture is amidst a massive change. It's a business model that hasn't changed in 60 years. Mechanically, the money is allocated today pretty much as it was in the 1950s and '60s when this got started.

[06:28] When you think about how businesses are built and scaling today, have nothing to do with the business of the 1950s and '60s. That's probably where my grand thesis is articulated the most. Outside of that, I find that I have a better eye for teams where product is more important.

[06:49] I've sat next to and invested alongside people who know how to build enterprise software, for example, where how and you build and scale a sales team is almost as important as the product itself. Having never done that, I'm at a huge disadvantage.

[07:05] That's the main thesis, that venture's changing. Outside of that, it's more just thinking about consumer innovation, marketplace models, and things like that, where I think I have a better eye than someone else.

Tyler: [07:14] You shut down your first company and made that transition into venture. What year was that happening in? What kind of timeline are we in?

Dustin: [07:22] I left Lehman in October of 2008, started Social Swipe a couple months thereafter, after Obama got elected, spent about a year on it. Then in April, 2010, moved up to Boston to start what was called Atlas at the time, and is now Accomplice.

Tyler: [07:40] You had a couple years of working at Atlas and investing in companies via that vehicle before Maiden Lane. What was that like? What was your first introduction to the venture business? How did you go about learning that?

Dustin: [07:53] I tell people, for about the first 18 months, I think I actually took value, rather than created any value. I think that probably applies to most investors, if they're being honest. Working inside a venture shop of any stripe is really confusing, because most people take it for granted, but these are run as partnerships.

[08:12] There is no true boss, per se, and it's a lot of consensus building, partnering, and really thinking about that and thinking about how to get things done. We're never taught around how to work in an environment like that. Most of the places where we attended schools, interned, and worked professionally have a hierarchy, and a boss, and you report up into that.

[08:37] For the first 18 months, it was me just walking around clueless, trying to build a network. Then I distinctly remember a lot of things clicking into place, when Jeff and I worked on our first annual meeting together, which is basically the time when VCs present to their LPs about the state of the portfolio, what's going on, and what they see happening in the market.

[09:02] When we were able to work on that, I don't know. The business just clicked. It was a big moment, because I was also able to build trust across the partnership by helping them write slides, tell the story, and showing them that I knew what was going on in the market.

[09:20] From there, I was able to start collaborating with people, then starting to see how deals were cut, and then started forming my own opinions about teams, product, and where and how we should be investing.

[09:32] The high-level theme probably through my first four years of venture is it's a massive trust-building exercise. No one really has the right answer in our business. Most of the time, actually, collectively, we're wrong. But there is definitely a consistent feeling of, "Do I trust this person or not?" That's also a key part of a good partnership.

[09:52] It took me a couple years to even realize that that was going on, but that was my first foray, and that first project, working on the annual meeting, was definitely the point where I felt like, "OK, I have a seat at this table. I can contribute something. I'm seeing things that are additive and can help people tell that story."

Tyler: [10:10] In the very traditional venture fund model you talked about, for folks that maybe aren't familiar with it, you've got a series of partners, and generally, you have some sort of guiding principle of what it takes to invest.

[10:22] Were you guys consensus-driven or were you looking for opportunities where partners disagreed? How did you guys mitigate that challenge of, "I'm working with these guys day in and day out. I respect their opinion, but I also may want to invest in something that's not obvious yet?"

Dustin: [10:37] We attacked that problem by basically letting people have complete freedom around seed investing. That allowed them to bring in an entrepreneur in a company before it completely made sense, to tie a lot of capital into it, and work with them, and show the team that this was worthy of a Series A investment.

[11:00] We all gravitated towards that, because it allowed people both freedom and a way to build consensus over time, instead of this concept of a team marching in, doing a hero pitch, making decision right there, and then doing "confirmatory due diligence" once the consensus has decided. It's really kind of a silly exercise in today's market.

[11:23] I'd say that generally worked. If you go back and look at the chapters of seed investing, that was the chapter where all the VCs were doing seed investing. Most of them have since pulled back, because there are inherent conflicts and pitfalls that you fall into when you have a larger fund and you're writing such small checks.

[11:42] You're spending time with a seed company, when probably you should be spending more time with a Series A company. It was just clear that there is a market for these things called "seed funds," and they've proven it out. [laughs]

[11:54] To this day, Accomplice is still seed-led, but the model is quickly morphing and changing over times, and Maiden Lane is an expression of that. We say, "Hmm, so a partner who's leading Series A investments probably shouldn't be working all the time on seed companies. Is there a way that we can share our capital, almost more like a communal resource, and work with people we do trust, and then let them almost be trust brokers?" That's what we saw happening inside AngelList, and where we were naturally gravitating anyway, at Accomplice, so Maiden Lane was born.

Tyler: [12:30] Those people are those kind of syndicate leads. Maybe they're taking the time and the effort at the seed level, but they're building a relationship with an additional capital source or a further-down-the-line capital source?

Dustin: [12:41] Yeah. For all of its greatness, AngelList I think is terrible at branding. [laughs] Even the name of AngelList itself is a little bit misleading. Syndicate leads is a complicated, wonky term. I would vote to move away from it. Most of the people we work with, if you want to name them something, they feel a lot more like an guardian angel.

[13:02] They're angels. They're not earning management fee, and they're not full time on this. We think that's actually good. In a way, it puts more on the line. They're creating, in my opinion, a new class of investor. For my seed, what they're giving me is a sense of trust and context.

[13:21] What's so special about what AngelList has built is it allows you to share economics so flexibly and so easily that it literally is creating an entire linear model that wasn't possible before its creation. Then what this does is it moves the capital into a communal resource, instead of this, "Oh, it's Dustin's budget to go spend on 50 different seed investments, which is a really stupid way of thinking about it."

Tyler: [13:45] Tell me a little bit more about that. Walk me through the old way of thinking about it, of, "Dustin can do 50 deals at whatever the check size we expect it to be is?" versus the new model of communal capital. What does communal capital even mean? How does that present itself online?

Dustin: [14:00] First I think it's important to understand what institutional capital is and how it works. Institutional capital is really attractive because it's sticky. It's going to be with you through several cycles, through several investments, over multiple years. Whoever you are, whether you're a traditional off-line GP or a syndicate lead, it lets you actually build a body of work, build a portfolio that lets you see if you're a good investor or not.

[14:29] There are some individuals who act that way, but generally individuals don't collectively act that way. So institutional capital is really important in our business. The old way of thinking about it was, "We're five partners. Let's go raise a $100 million fund, and we have that amount of money to invest."

[14:49] Naturally, again, there's no boss. You're probably going to divide it [laughs] pretty evenly, and all have $20 to invest. Looking at it more like a community resource is to say, "Hey, we've raised this fund. We trust this group of people. Our strategy is to deploy it over this period of time, at this stage. If you see interesting things, hey, let's work on them together.

[15:11] You may see one interesting thing this year. You may see 10. We never actually budget and specify that you have to achieve something or do something. It's a very opt-in, opt-out, come-as-you-go model. By the way, we've all been building and using this for years and years, lo and behold, in things AWS. This idea, it's so revolutionary in our little fund world, but it's just best practice everywhere else.

[15:36] Again, the off-line world has been working the exact same way for 60 years. The capital is allocated no differently [laughs] than it was before the computer was even invented. Kind of hilarious. Syndicates allows you to opt in and opt out as it's a fit for your life, as it's a fit for deals that you have access to, as it's a fit for when you have a thesis that you're excited about.

[15:56] Lo and behold, we may not all be super excited to invest every month of every year. There might be a year that you just don't want to invest for no reason. You just don't want to. Why can't you have that option in 2015? Syndicates allows that.

[16:09] It's seen more as a communal resource, where that trust doesn't decay because you don't invest. If anything, actually we found that it improves, because we know people are going from a place of conviction rather than a budget model. Yet, they still have the benefit of having institutional capital and being able to invest in multiple rounds of their best companies, and being able to write checks more quickly and things like that.

Tyler: [16:33] I want to get deeper into that, but I want to set up what Maiden Lane is and does, before we do that. What is the founding story of Maiden Lane? What's the genesis of it? Take me back to that point in 2013. How did it start?

Dustin: [16:46] Naval called together a bunch of reporters at Cavalier, in the back room, and unveiled Syndicates. We had been tinkering around with it for some time, and had done a couple deals. They'd set up an old version of it with second market, where they'd run it through a broker dealer and all this.

[17:04] Syndicates departed from all that, where AngelList was going to basically run the wire, move the capital, and really be the holder of the experience. He presented that to the reporters. I think most of them were desperately confused about what was going on, [laughs] to be honest. When you look at the articles that were written, they're just like, "Yeah, angel investors will be able to raise money." It was all kind of confusing.

[17:34] When Jeff and I saw the pitch and saw the reaction, I think it clicked in our heads that institutional capital would be valuable on the platform, number one, and, based on what we had seen in our successes and, frankly, stumbles of seed investing, it felt like the right direction. Let people with context, high conviction, and an ability to add value just write checks.

[18:02] If it works, we're going to figure it out. That part's easy. But how can we get a good group of people to be able to do that. Then this took off all of the logistical, the legal, the paperwork bullshit, and put the main question square into play, which is, "Do you trust this person? Do they have a good eye? OK, invest with them."

[18:24] When that happened and walked out of the meeting, we said, "Let's raise a fund." I said, "I don't know how to do that, but let's do it." [laughs]

Tyler: [18:30] How long did it take you to raise the fund? What was that process like?

Dustin: [18:33] It took us about seven months. It was a fascinating journey for me, because I had never gone out and run a fundraise like that, and also had never told such a new story. Syndicates had barely just launched to the public, so LPs generally are one or two steps removed from the cutting edge of what's going on, because their job is to allocate lots of capital across tons of asset classes.

[19:02] It was a real challenge. It was a real challenge to explain to people why Syndicates was interesting, and why it could be the future, and at that point, we had very little, if no evidence. People forget that 18 months ago, we didn't have $200 million invested into startups, had no follow-on investments from good investors, no good co-investors.

[19:26] We had a few syndicate leads who "signed up," but that was about it.

Tyler: [19:33] You guys started in 2013. It took seven months, which for context for people listening -- because I think your point about the press kind of collectively not understanding the announcement, I think is common of almost everyone, because this is a really archaic industry. It's not a commonly...

[19:48] There's a lot of minutia, both regulatory, legal, and financial, and then also, frankly, it's not something that most people find interesting, so it's not properly reported on. [laughs] Hopefully, the listeners here are interested, and they haven't turned off yet.

[20:04] For context, seven months is an incredibly quick time to raise a fund, right? Generally speaking, you're talking about 24 months often, if you're trying to go out and raise your first fund.

[20:14] What was it that let you guys move that quickly? Frankly, you were the first online platform, or the online fund on AngelList. Now you start seeing other people starting funds, but low and behold, it's 12 or 18 months after you got on the platform. What let you move really quickly in that...

Dustin: [20:29] The cheat was very simple. It goes back to before even the existence of AngelList, and even the existence of Jeff working at Atlas. Jeff had worked with Nivi, the co-founder of AngelList, at Seed Capital in Cambridge, before joining Atlas, and before Nivi even moved out west.

[20:50] Jeff made a small, personal investment in Venture Hacks, which was the blog that preceded AngelList, and so we had been hanging around the hoop, working with these guys for years. Our first investment...I don't know when he made that personal seed investment, but well, well, before 2012.

[21:11] Again, when I joined Atlas, I think all of us were collectively excited, just about getting rid of the old. It was time to try something new. The old was not working for us as a firm, and so we all got excited that that online would have something to do with the new version of Venture, and wanted to learn by doing.

[21:34] Atlas had made the first investment in AngelList. To this day, institutionally led the Series A, co-led the Series B, and wrote a terms sheet in on the Series C. By extension, the LPs that I had met with had a fairly high level of trust, because they had seen it through the Atlas portfolio, watched it for a few years. Nivi had even presented at our annual meeting, and so for them, it wasn't a fully new concept.

[22:03] Honestly, this is part of the reason Venture is so tightly held, is it's a relationship business. All four of us leaned on our relationships and the trust in there to say, "Hey, let us try something new. We're not going to be just a run-of-the-mill seed fund. We're really going to try something new, and it may not work." Most managers don't say that.

[22:24] A lot of my LPs found that very refreshing, and they said, "We see the same thing over and over and over again. This is definitely different," and we consistently get that feedback.

Tyler: [22:34] Got it. You raised the funds, and the first one that you guys raised in 2013 was a $25 million fund?

Dustin: [22:41] Yes, $25 million.

Tyler: [22:38] So you had $25 million in capital, and you said the goal was to do 50-50 online-offline. It's morphed into almost all of it online?

Dustin: [22:51] Mm-hmm.

Tyler: [22:52] You're generally deploying that behind syndicate leads or other angel investors, so people who are investing and leading in investment on the platform, and then you're providing capital to just increase the allocation that they can fill?

Dustin: [23:04] That's right.

Tyler: [23:06] Walk me through some of the early selections, like 2013. What are the types of leads that you're working with, that you're looking for, and how did that first six months in operations feel like?

Dustin: [23:16] We mainly pulled from our networks, from people we had co-invested with and worked with for several years and had a high level of trust with. It was like, "Hey, let's give this a shot." They were excited and open to it, and confused.

Dustin: [23:31] The confusion is a theme that, since starting to work on this two years ago, it's been the constant. Like you said, because this is such a nuanced, wonky kind of process that touches everything from lots of regulation to social cues to business logic.

[23:50] There's just a lot that bundles into it, and so a lot of people just...It's not something that's widely reported or understood, and so if you think about what's going on at a super-high level, AngelList is unbundling all of the knowledge and the practices of old offline funds and productizing them. Everyone who's touching the product is having to learn that, to some degree.

[24:12] We started with a group of early adopters that we knew well, and that we knew we could at least trust, and then just kind of let them go at it and start investing.

Tyler: [24:22] What are some of those things that are unbundling? You talk about the unbundling of services. What are some of those things that are now moving into your product on AngelList?

Dustin: [24:32] I've spent the last two years [laughs] constantly thinking about what a fund is. It's hard to build and productize something without knowing what it is, and a fund is one of those kind of ephemeral things out there that everyone knows what it means, but doesn't know what it is.

[24:50] If you boil a fund down to its simplest parts, it's basically just a container. Literally, just imagine a box, and inside that box goes money and contracts that define economics for different people and relationships, and definitions, and shares of companies, when you buy those, and then eventually money comes back and then is redistributed.

[25:12] The box is broken down and thrown away after about 12 years, and so the fund itself is not something of massive note, and that's why most offline VCs of any intelligence spend a fair amount of time building a brand.

[25:27] Everyone knows what a brand is. They can feel it, they can touch it, they have an opinion on it. The fund itself is basically just a simple container, and what AngelList has done is basically taken all the different things that go inside of that and made them services.

[25:42] Every fund has to decide how to invest its money, and so that decision process is now online. Every fund has to bring in capital through what are called capital calls, and then invest that in companies. Now, that's three clicks, an HCH transfer, and then into the AngelList account, and then into the startup.

[26:04] Piece by piece, it goes on and on and on. There are tons and tons of services, most of which, frankly, aren't even that relevant for making the decision to invest. You don't have to know all of the tidbits around tax law and securities law and all that stuff to be a smart investor. You have to check that box so you don't go to jail, [laughs] but AngelList internalizes all that complexity and creates this new experience.

[26:28] When I say "online," that's what I mean. Someone is thinking about what these things are and how to make them more human and useful, and instead of thinking of them in terms of, "Can I just get more money into that box and raise a bigger fund?" which is sort of in the name of the game in the offline world, literally, for the past 60 years, because everyone's done it pretty much exactly the same way.

Tyler: [26:50] In a big [inaudible] , you get paid off of the amount of money in that box, but also you don't have to go through the pain of creating the box every time, so the more capital you can put into that box, the lower the total cost you're spending on incorporation, findings, and documents, and all these things.

Dustin: [27:09] Absolutely.

Tyler: [27:10] As that productizes, it gets simpler, and it's kind of abstracted out of the decision process. What makes a good venture investor or backer of other venture investors, LP? What makes a good LP or GP today, or even five years from now, as this continues to abstract out.

Dustin: [27:29] I think what makes a good backer or LP today, it's pretty simple. It's someone who's consistent, who is committed to that person, to build a portfolio. It's someone who can and will invest through multiple rounds. It's someone who understands how risky the stage of investing is, and is OK losing that money on many of the companies that they're investing in.

[27:55] It's someone who I also think can help the lead, whether it's through adding value, or thinking through the thesis, but really just being a supporter of that syndicate lead, and by extension, hopefully, the founders that they back.

[28:11] That's about it. It's pretty simple. It's not rocket science.

Tyler: [28:16] What about from a direct investor? Now, two years in, what are the types of people you're looking to back as syndicate leads?

Dustin: [28:26] The best leads we found have a mix of three things. Number one, they can add value, and the flip side of the coin of adding value is meaning you can break into a good deal or defend your piece of a good deal. That's how most entrepreneurs size up the allocations as they take investment.

[28:46] The second piece is that you sort of have access. That probably mainly even is the first piece, but this is very much a game that's based on not just who you know, but how you know them and what you know, because we're sort of building the future real time, and so again, we don't have a lot of the classic things to riff off of in terms of valuing a company, whether it be cash flows or whatever other metrics traditional financiers use.

[29:18] What we can say is, "This team has shipped product before. They have great ideas about this. They have domain expertise," and that does have inherent value, and people are willing to pay for that. Having access to that, and understanding the context to that is hugely important.

[29:34] The last one that's a bit of a surprise, and I didn't see it coming when we started -- the best leads have an opinion, and it's an informed opinion, and they're willing to really fight for it.

[29:47] We're trying to move away from a consensus model. That doesn't mean we can completely disregard the management and the fiduciary responsibility of the capital that we represent, and so we still do have arguments, fights, and disagreements. The best leads we work with are just consistently able to articulate their opinion. They're able to articulate it well and be informed around it, and defend it when there is disagreement.

[30:16] That's been way more important than I thought it would be.

Tyler: [30:19] Give me an example of a syndicate lead you've gone through that process with.

Dustin: [30:26] Another syndicate lead you interviewed, Sumon Sadhu, has a very strong thesis around international. It's well-reasoned. It's thoughtful. It's ahead of the curve. It was at first something we weren't really comfortable with, because we first didn't know. "Would we hit some tax law thing, and have to deal with some complexity that at our small fund, it didn't really make sense to deal with?" and so there was some hesitation there.

[30:52] None of us had operated in any of these countries, and, "My gosh, there's this, that, and the other thing." There's a list of excuses. They're all completely reasonable, but at the end of the day, that's not why we're paid.

[31:02] We're paid to find the best investments, support them, and invest in those companies, and so, just through every turn, it's like, [laughs] "No, we're going to do this. Now we're going to do this," and we did it on multiple occasions, and I think have been better for it.

[31:22] It's opened our eyes to what's going on on a global basis, and as scary as it was to start, for example, now we're realizing a lot of these companies want to operate in the United States, but have their users be in a different country. You're like, "Oh, OK, well, we can work more closely with them. That makes sense."

[31:39] The Internet really is flattening the world, and so it's just really forced us to deeply, deeply question this assumption. "Should you only be investing in the United States?" We knew we eventually wanted to invest everywhere. That was never a question, but it happened a lot sooner, thanks to him.

Tyler: [31:55] Is that something where, without naming of names of partners, but is that something where Sumon is arguing against the four of you as a partnership, or are the four of you arguing internally? How does that actually play out?

Dustin: [32:07] This is where that trust thing comes in. It's very hard. You can't say someone is right or wrong. We don't know yet. Everyone is entitled to their opinion. This is where that dance of trust and partnership really comes about.

[32:21] Yeah, Sumon was having a discussion with Naval and myself. The four of us were having a separate discussion. We were all just circling around, trying to figure out were we ready to do this and excited. We got there through a discussion that wasn't aggressive or in any way negative.

[32:45] It was on the up, and this is why it's so important, though, to be informed around it and have conviction that is condensing. It's easy to have an opinion today. The Internet is in everyone's hands all the time. There are people constantly spewing theses and ideas allover the place.

[33:03] What makes an informed opinion special is, at every turn, there's a reason that you hadn't thought of, or another reason that may scare you to just say, "OK, we're going to do this." That's rare. It's also probably not an accident that almost all, if not all, of the best leads we work with are founders themselves.

[33:28] That helps tell that story in a very different way. When people talk from that place, they're talking from a place of sympathy and empathy, instead of more of this consultant, armchair idea person. They're talking from a place of, "I can help in this way," or, "He's done this right."

[33:48] That's a lot more both comforting and convincing than someone who's just taken a more financial analyst point of view.

Tyler: [33:56] Is that universal? Are 100 percent of the leads that you've gotten excited about are founders, or there are outliers of people who do not come from a background of being a founder?

Dustin: [34:09] There are some who aren't founders specifically to find, meaning they may not have founded a company. I'm roping in people who were within the first 15 of an operating, successful company, and made big product decisions, and shipped things.

[34:27] I know they're not, in title, specifically founders, but they're more of a founder than someone who comes into Uber today. Clearly, you're working with a different set of challenges and visions and machinery than you would be at day one.

[34:46] I really mean people, I guess, operators, who have been in a company, 50 employees or less, and made material contributions. That is 100 percent. Everyone we've worked with does have that in common.

Tyler: [35:00] I'm just curious your opinion. This is a relatively new thematic thing we hear in investing, which is founders or former founders make the best investors. I think [inaudible] gets the credit, at least, even if they weren't the only ones saying it, for early on, advocating the idea that general partners will always be former founders.

[35:20] I think this is continuing to be a meme that we hear in venture investing over time, yet some of the best investors, historically, have not come from operating roles. Do you think this is a structural change that's happened, where founders truly are becoming the best investors, or is this maybe a different between seed stage and later stage?

[35:43] What's the truth in that meme, and then what are the areas where you disagree with it?

Dustin: [35:46] You nailed it. It's the stage question. Founders have, I think, factually the best seat from which to make a decision from the inception stage until a company finds a capital partner. I don't care about all the marketing bullshit of pre-seed and seed and all that crap.

[36:03] In that stage, I call it the chaos market because it's just totally chaotic and messy. Founders actually do have the best seed. When they operate within the constraints of focusing on their expertise and sticking within their network, it is very clear that they have a much better seed from which to make a decision.

[36:22] The problem with the meme that's been created is, unfortunately, the data just doesn't line up. Factually, many of the best partners out there were really just investors. [laughs] That was it. When you talk to LPs, most interestingly, they will say that the data that they see, they actually know the answer.

[36:44] They usually have dozens and dozens of managers across multiple funds. They will say that, in many cases, operators are terrible investors. They try and come in and control things. They try and solve problems the way they did. They think they know the answer, and all of those.

[37:02] I don't know where the truth really lies. I generally believe LPs, the ones that I've talked to on the topic, but I think you can find outliers on both extremes. I will say this, being a great investor is way less interesting than most people think.

[37:18] It's usually a huge amount of tedious, board level work, being an advocate for someone else. It's doing things that, I think, if you're the very best founder out there, you would be like, "Why would I do that?" What I tell people is the reality of the meme should say this, "If you can't build, invest." [laughs]

[37:37] That's the truth. It's not, "If you can't build, teach." It's, "If you can't build, invest." If you are an absolutely world class builder, investing has to seem incredibly boring to you. You would never want to sit there and advocate for someone else and be on their board and nag [laughs] them and do governance. Go build.

[37:57] At the seed stage, most of that doesn't apply. You're not governing. A lot of the tedium isn't tedious. It's working with someone that you know, may even love and respect dearly, and you want to see them succeed.

[38:10] It's a very, very human enterprise. That's why, when we took the offline fund model of this huge container, and then just shrunk it down into a miniature container and said, "Hey, that's a seed fund," I think we're going to learn in 10 years that there's a better model out there that isn't looked at through the lens of just the fund.

[38:30] Syndicate is going to be that replacement. It's going to say, "Hey, if you've created a company and have a proprietary network and have expertise, there's a way to not only help others succeed, but to monetize that differently."

[38:43] Yeah, it may sound and act a little bit like a venture fund, but when you really dig down into it, it's not. It's the ability of a founder to help other people out and be a world class mentor. Instead of taking advisory shares, you take carried interest.

[38:56] You share in the profits, and you're able to scale through multiple rounds.

Tyler: [38:59] Walk me through what you think that future is going to look like for scaling through multiple rounds. Let's say you have a great operator. Actually, somebody that comes to mind is Frederick from BlaBlaCar in Europe, who's not writing huge checks, but is a very valued human being, or people want him on the cap table, they want his advice.

[39:21] My guess is that he's very busy running BlaBlaCar. If one of his bets starts succeeding and does become the next massive success, and he's got to scale up his investment through the A and the B and the C and the D, and he's ultimately talking about putting maybe $20 or 30 million to work to keep his pro rata, that's not going to be something that he gets really excited about.

[39:40] Walk me through how you see the future syndicate lead dealing with a success case.

Dustin: [39:49] I think we can take a page from some of the offline funds who've done this. Granted, now they're more full time in their role. It'd make sense for them to do this. If you think about what SV Angel did with Pinterest, there's several other funds also writing these SPVs.

[40:05] What's interesting is that's created the behavior on the LP side. LPs are willing to participate and invest in these things with someone that they trust. My first pass at the future looks like a little bit like that.

[40:20] How someone like that maintains their pro rata is ultimately really a decision between them and the founder. If it's a question of the type of relationship they have, this concept of adding value and being a supporter of the company, I think what's really going to happen in the future is people are going to see it.

[40:41] Instead of more of a transactional, "Hey, make me an intro or not," which I think is ultimately what people are saying when they say, "value add," or, "Lend me your brand," I've found that founders have, in their circle of trust, usually four or five people that are not a lead investor.

[41:00] They are not sitting on the board and doing governance, but have invested a lot of time. It might be on stuff just in terms of helping the founder keep their mind straight. I imagine what's going to happen is founders are going to have this class of investor that fit that mold.

[41:15] They're going to want them to keep their pro rata as a thank you for their efforts and their support in the journey that they're on, and just to keep more of the cap table closely held.

[41:28] I think the future is one where the complexity of adding a new investor and rebuilding that trust and adding complexity on the governance side, when they're not adding a ton of value, people are going to start to compress them and say, "Yep, we'll do an investment, but our pro rata people get all of that. You, Mr. New Investor, can bring this."

[41:48] Or, we've even seen this in one investment already, in a company called Bit9, in a late stage crossover round, the CEO just said, "Let's just do the entire round through existing investors." The beautiful part around that was way less time to execute, no new questions around governance or trust or someone they don't know.

[42:07] They have everything they need. They have a great board. He has all the value add you could have. It was really just more a question of capital. Our LPs were really excited because it's one of the best-performing investments in the portfolio.

[42:18] They get to go in without management fee, without a 10 year lockup. They're saying, "Why wouldn't we do this?" The outlines are there. How it really specifically plays out, I think, will also be informed by this cycle and how it changes.

[42:33] You can start to imagine where, if things don't go as the unicorn bucket [laughs] expects, we're going to start to see new iterations and situations where people are going to get involved and do things that I think we just don't have a playbook for right now.

Tyler: [42:50] Do you have an opinion on that, where we are with relation to the unicorn bucket? Would you take an index bet of unicorns today?

Dustin: [42:57] I probably wouldn't, actually. I'm a little bit scared. I also just don't spend a ton of time obsessing about it. I wake up every day trying to figure out our very early stage thing, and what it's like to work with people, and how we change that.

[43:15] By the time something gets to unicorn status, it's left our wheelhouse. I have so little control over it, it feels silly to just become yet worried again [laughs] about their success or failure. When I have eight unicorns in my bucket, I'll have an awesome problem worrying about that.

Tyler: [43:30] From the perspective of the angel investors that you back, you've talked about some of the criteria that you think are really important. For somebody that is, call it a former founder, perhaps they've just sold their company or maybe cashed out some secondary equity.

[43:48] They're thinking about potentially becoming an angel investor. What would be your advice to them to learn the business and decide whether or not it's for them or not?

Dustin: [43:57] We get this question a lot, especially lately. It's something I'm, I think next year, going to spend a chunk of my time to actually really making a clear playbook around. The early ideas I have right now are, number one, start as a backer.

[44:15] Start working with other leads that you like and respect. Support them. You can invest as little as a thousand dollars. In a lot of cases, it's an amazing way to help them sell their syndicate in the competitive deals.

[44:30] They can say, "Hey, I have Tyler here. He did X and Y. He's great. He's value add. Then I have these other guys, too." It's amazing how successful that is, because the founder says, "Well, that's great. I get this lead investor, who I love, access to these other people who are useful in these ways."

[44:48] "It's not even five entries on my cap table. It's all done in one LLC. That's great." On you go. You can start to get your hands dirty with a thousand dollar checks across people, hopefully, you may already know. Just get some reps that way.

[45:07] The other thing is just start to get involved, however that makes sense for you. Whether it's co-investing maybe offline with other people, or helping fellow syndicate leads, things like that. Then also start to build a network of co-investors upstream.

[45:24] One of the best things all of us can do for portfolio companies is just have a good network of investors. It's never too early to start that. It's probably strategic for that person. Doing what you need to do to make that happen in an authentic, additive way is a great way to start.

Tyler: [45:43] For somebody looking at maybe their first deal, what are the pitfalls you see a lot of early angels jump into?

Dustin: [45:51] I think the biggest pitfall is realizing how many deals you have to seed to find the one that you like. A lot of people, when they haven't done it professionally, just don't realize the scope it takes to find a really good investment.

[46:07] Generally, it's probably a telltale sign if the company's leaning on you to be a star investor. Your ego is probably saying, "Wow, this is great. I love this company. They need me. That's awesome." Most of the interesting companies out there generally are actually well-funded. [laughs]

[46:25] It's less of a question of if they're going to get funded. It's more of a who. Just looking for those cues and being aware and thoughtful, and then really deeply understanding what about this is proprietary to you?

[46:38] Why would you have it and someone else wouldn't? If you can't really, really answer that question, everyone else probably has seen it. It's probably not proprietary, which may or may not mean that it's an interesting opportunity.

[46:51] Unfortunately, the market is not always right. All the crazily chased-after seed deals that everyone obsesses over, I'm willing to be they have as high a failure rate as the ones [laughs] that everyone says no to, and somehow scraps something together and find a way to do their round.

[47:09] There really isn't a correlation. As a starting point, you want to be more in the other one, and not in ones where they need you. Just being aware of that is probably the biggest pitfall.

Tyler: [47:19] What is that ratio? How many companies do you have to, how many frogs do you have to kiss to find the right one?

Dustin: [47:25] I think real answer depends on how verticalized do you want to be. I met with an investor today who is only looking at stuff related to real estate. His number's going to be a lot different than someone who's doing something as broad as Rick Marini in consumer innovation.

[47:43] For someone like the real estate guys, I would say probably a hundred. For someone like Rick, it could be like a thousand.

Tyler: [47:52] He's probably seen those over the course of a decade or more, right?

Dustin: [47:58] Yeah.

Tyler: [47:58] Do you find that successful angels are often much more experienced operators, or is there a sweet spot in terms of years of experience? Less age, but more years of experience.

Dustin: [48:09] I think we're seeing a spectrum of people. The more important one is the opinion piece. They separate themselves by being obsessively informed. That doesn't have a specific age or even level of success.

[48:26] I think a lot of people say, "Oh, would you back so-and-so? They've been wildly successful." In our experience, many of the most successful have been a little bit less interesting. They're already wealthy. They've moved into a different phase, where they're a little bit more about just exploring what they want, and investing maybe articulated in that way.

[48:45] Someone who hasn't made life-changing money yet still has a lot on the line. It's very much a part of their work and their track record. They're willing to really, really hustle.

[48:56] We're early days in understanding that model, but I would rather take someone who's wildly informed and opinionated and ready to hustle, versus someone who's wildly pedigreed with success and just interested in a few things.

Tyler: [49:09] For that person who's informed, who wants to learn the business, wants to make a longer term commitment to it, your first recommendation is start as a backer, start small, learn the business through other people doing it.

[49:21] Maybe even in the traditional world, go in with a syndicate of people you trust. Start learning the business that way. Are there other tips that you would push them to do, so maybe how much capital they should allocate to learning, or how many investments they should try to do, or how they should test and refine their thesis?

Dustin: [49:40] We're all pretty levered into tech. I would say, "Follow the general good rule of thumb of one to two percent of your assets." Maybe if you went up to five, if you were really cocky, OK. If you went up to 10 and beyond, I think you're just a little silly.

[49:57] Keep it within the realm of diversification that any adviser would recommend. Then just be consistent about it and continually peck away it. Start small, and grow into it, to where you're comfortable. Just get the reps in to where you feel more informed, and you have a thesis that sounds good to you, and that you've validated with other folks.

[50:22] I think the biggest part that sometimes people miss is investing is insanely social, just as running a fund is really social exercise, at the end of the day. If you don't feel like you're surrounded by top flight people, A, you're probably not, and B, you probably should be, to be investing well.

[50:41] That, at the end of the day, is what makes syndicates so interesting, is they've made that accessible to a broad swath of people. We've made it accessible to Maiden Lane LPs, who back all the traditional offline funds, and they've made it accessible to an accredited investor in Turkey.

[50:59] Who knows what the net impact of that is. Of course, everyone's first pass is to say, "Oh, it's a sign of the bubble, and all these people are idiots. They'll all lose their money."

[51:08] Maybe they will, maybe they won't, but you sound like you're more defensive on the fact that people now have access to this judgment. That experiment is definitely going to play out now, with AngelList having raised CSC and Maiden Lane, and there will be other funds as well.

[51:23] We're going to see if that's true or not. If you think you deserve a spot next to Elad Gil and Rick Marini and others, get at it. Start working on your thesis and get informed.

Tyler: [51:37] What are the obvious failure cases you see? What are the people who maybe believe they have a spot next to those folks, but end up failing or end up not actually deserving that spot? Are there obvious mistakes you see them make? Are there obvious patterns in that?

Dustin: [51:53] Funny enough, it's not really dissimilar from founders. It's self-awareness. Others have talked about this at length, and I think, nailed it. I remember a post Fred Wilson did. Self-awareness is what makes up a great founder.

[52:08] Also, separate from the founder versus investor genesis, it's what makes up a good investor. That self-awareness is where most people just lose themselves. They can't understand why this is a great opportunity or not, or why they might be missing something.

[52:29] The other piece is just people give up. It is a long term, hard grind, and all of us, to some degree, I think, are in that game. A lot of the things I do with the leads we work with is to get them to slow down and think over a four year time horizon.

[52:48] Investing is such a drop of dopamine that I think we're, as humans, incented to do it just on that level, but the ones who are successful, frankly, have probably done the least amount of investing this year.

[53:02] They're probably thinking what the landscape looks like in 2016, '17, and '18. They've set aside their capital. They're steady. They're thinking about the market and where it goes. It doesn't mean they're doomsday, and like, "Every unicorn is going to die." There's a level of discipline there, and that package is what separates them for the folks who fail.

Tyler: [53:23] Kind of a fun exercise...If you had to take Maiden Lane funds and back 2009, Dustin, before you learned the business, if you found the equivalent of Jeff finding you in 2009 and convincing you to start this business, what would you want them to learn before they did any deals? What resources would you point them towards? What books would you have them read? What actions would you have them take? How would you train them to do well?

Dustin: [53:52] Yeah. I would just be a buyer of context. I could not feel and see where mobile was going, partly because I was in New York. I'm not one of those "Silicon Valley is the only place to be" drum beater types. I think you can see it from other places. But look, I had just come from banking. I had just been through a massive bankruptcy. My head was in a weird spot. I had no development experience. I'd never shipped any product. It's like I had negative context. I was bringing bad habits to the table.

[54:24] So, I would say make a change. The one good thing I did without asking permission from anyone, spending my own time, my own reputation, is I went out and said, "I'm going to fix that." I stuck with it for an entire year and literally was not looking for a job in venture. It was a complete accident. That was probably part of the reason I got hired. I was like, "I don't want to move to Boston. I don't want to do this."

[54:51] I'm like, "I'm enjoying what I'm doing. I know I'm sucking and failing, but I have a lot more runway ahead of me. I live in a super cheap apartment." At that point, New York was really inexpensive relatively speaking. I was like, "I got this." I think that instinct was right. But if you want to start to put other people's money to work, you really, really have to be sharp on that context, and you should want to be sharp on that. Right? For your own track record's sake, want to do that.

[55:19] So, whether it's all the classic books and blog posts that are out there -- I mean, there is a tidal wave of stuff -- consume all of it, including Venture Hacks and all the rest. But more importantly just get out there and start forming an opinion about what companies are interesting or not and then building a network around that.

[55:37] How you do that is really actually dependent on your style. That was one thing over that year that I learned is I have a very different way of building a network than a lot of people out there. I don't like going to conferences. I don't like doing big events where you have to work the room and schmooze. It speaks to none of my strengths.

[55:54] At Maiden Lane, we build our network a lot differently. It's through smaller dinners, where we break bread. I take a lot of care to make sure the food is well done and things like that. It's lead to some great connections and great investments and leads and things like that.

[56:08] But it just made me realize, there's not one way to build a network. Find your way of doing it. That would be on a personal level, my biggest piece of advice.

Tyler: [56:16] Any other ideas you have on ways to buy context?

Dustin: [56:20] Build product. If you want to make the smartest thesis...it doesn't even have to be a company. Build a product. Solve a problem for someone, even if it's just 100 users, you'll learn exponentially more than any blog post out there.

[56:36] Actually, if you want to buy context, maybe ignore all blog posts. They're such a specific view, and ultimately they're a form of marketing.

[56:46] I think people put on this lens. I've had founders run into a wall with this when they're building their fundraiser. They're like, "I did everything the blog said." I was like, "Yeah. All those blogs were meant to give those people deal flow, not for you to raise your round, right?"

[57:01] I think if you're able to build a product, you can articulate things in every dimension, because it's that classic mix of psychology, economics, design, engineering, all in one. So you hit all the key questions and assumptions. That would be, I would say, the best way to buy context.

Tyler: [57:21] Knowing that you invest in a lot of seed companies -- I would assume the bulk of your portfolios is in seed investments, at least when you first get started -- what are kind of the common pitfalls you see companies hit when they are unable to hit a Series A? Are there things you look for in a seed deal to ensure there will be down-the-line investment opportunities, and a company won't die on the vine?

Dustin: [57:43] Yeah. I mean, it is a pitfall that happens every day of the week and twice on Sunday, and it's so fucking annoying. You have to raise enough money.

[57:53] We know this now. It's not met trying to dilute you more or whatever. It is a function of the most efficient market out there. We are all buying labor. The designer and developer market is insanely efficient.

[58:08] It doesn't matter if you're in San Francisco or Boston or Austin or Seattle or London. The developer market is the main input into building a company that runs the experiment to see if they can be ready for Series A.

[58:21] It takes between two and three million dollars, unless you're based in Canada. You get the benefit of the currency exchange right now. There is a developer tax there, where someone could raise a million, a million five, and it acts like three million dollars in the US, and they can get enough traction. I've seen it done multiple times.

[58:38] But look, if you're anywhere in the United States and you think you're amazing and ready for Series A and you haven't raised three million dollars, I'll take the counter bet. I'll be right enough of the time that I'll make lots of money doing it.

[58:50] What's really sad is I don't want to make that money. It sucks. It's the worst outcome for everyone, because if you think about what that means, you've just taken a shitload of financing risk. And financing risk sucks. No one gets joy out of that.

[59:04] Maybe if there's a ton of funds out there who buy seed prime stage companies to go the Series A. I remember Bullpen raised their fund around that.

[59:12] But, there are so many other new opportunities. It's never going to be a real market. So, it just sucks.

[59:21] So, yes, the pitfall I see is not raising enough money. It's because people are scared, and they don't know how to tell a story that's worth two or three million dollars to investors. I get it. I try everyday to provide advice and ways to make it happen. Still, I often fail. It's a really hard problem.

[59:40] But look, I think most funds are sitting back and just sitting in their chair and thinking about that. You can love online. You can hate online. But the future of online actually helps solve that problem.

[59:51] It makes dynamic pricing a very real reality. It makes this concept of these stupid rounds go by the wayside. So, if you want to support that, I think you should at least dedicate part of your raise to online investors, because that is the future that I think everyone wants, one where it's unlocked from these lockstep amounts that can be very awkward.

[60:13] But right now, you need to raise between two and three million dollars to raise Series A.

[60:17] The second biggest pitfall is most people just don't know how high the bar is. They think they do. It's this, I'm a stubborn founder, yadda yadda yadda. I know I can build, I can do.

[60:28] It's like, nope. That's actually just very noble. The best founders actually have it on locked before they start raising their seed round. It's a joy to watch. They just literally know exactly where they're going, and then all the ducks fall in a row.

[60:43] It can be hard if you're really building a brand new out there product or behavior that no one has ever seen before. I'm not saying it's universally applicable. But even then, for every new behavior, there was a company that had done that before you, and did hit certain metrics.

[60:58] The most disciplined founders I see know where those are. They know where Snapchat was at seed, at Series A. They know where Pinterest was at each of those stages. They know the key metrics that they tracked. They know how they thought about them. They've talk to the founders.

[61:13] So, when they go raise their seed, they know where they're going to hit those. They know when they get to their Series A, they're like, "We've achieved this. We're ready to do that."

Tyler: [61:20] Oftentimes, they've already done the same for the B. They know always at least one stage ahead.

Dustin: [61:26] Yep.

Tyler: [61:28] As an investor, maybe a slightly more experienced investor than the newbie just getting involved. Does that mean you would say no to a company?

[61:36] The first point you made about needing to raise two or three million dollars. Would you say no to a company that was a good idea, a good founder, but only trying to raise a million, or even only 500k early on?

Dustin: [61:46] Definitely not. I think formation capital is a real stage. I think it's silly that it's marketed as pre-seed, and that's different from seed and all this crap.

[61:56] But most entrepreneurs, even if they're young and scrappy, need a few hundred thousand dollars to get started.

[62:04] My vision for Maiden Lane is that we have a team of amazing people that are that capital. They have the context on the team and the opportunity that we can just click, fire, go, and it's barely a discussion.

[62:17] If you think about what that means and what we have to build to do that, that's at the furthest extreme of the trust exercise I've been talking about over and over again, which is we've worked with them long enough to just take their word. Because there's no product, no traction, no other signal to riff off of.

[62:35] But that's ultimately why Maiden Lane exists. At the end of the day, I'm paid to build a group of people that we trust so blindly that we would go in at that stage, and be the investor of record. That's why I started Maiden Lane, and I think it's really, really exciting.

Tyler: [62:51] You talked at the beginning of the discussion about brands. You said funds are these vehicles that are really kind of silly, and that anybody who is kind of building a business in the venture world focuses on the brand, not the fund. What do you want the brand of Maiden Lane to be?

Dustin: [63:07] I want it to be an extension of the leads. I want them to be able to borrow the brand to get started, and I want them to be able to borrow the brand to stand on the shoulders of other leads who have done well.

[63:20] This, ultimately, is a mentorship business, on the investing side. I would not be here today without Jeff and Ryan, my partner Chris, and several others who have taught me the business. It is not intuitive. It's also not magic.

[63:37] It's something that you can do, but someone has to basically take you under their wing and watch you fail and suck. Most of the people who are good at it are insanely busy. So, it's a very special thing to mentor someone.

[63:54] I also think that applies in the land of founding companies and that's, ultimately, the brand of Maiden Lane I want to be just known for the very, very, very best mentorship, both on the lead side, and on the founder side, that you're getting a partner in the business that's different.

[64:11] Then your offline, general partner that led the round, Series A and beyond, or what have you, that doesn't sit on the board all the time, but is the first person you call when there's massive success, and when there's really scary failure.

[64:26] I think our business is insanely human, and there's a role there that can and has already been played, for years and years and years. The things that Syndicate is making possible, though, is that person can justify it from an economic point of view.

[64:42] Now, it's hard to game, because they only share in profit, and so I think there's deep alignment there, but I want that mentorship to no longer be free, because I think by making it free, it doesn't happen as often as it should. I think if we build a sustainable business around it, and if you believe startups are a force for good, who knows where this goes?

Tyler: [65:03] Great leads create mentorship for up and coming entrepreneurs, and extending that, Maiden Lane creates mentorship for people who are trying to learn the investing side of the business. How do you think about scaling that? Are you going to scale this up to thousands and thousands and thousands of leads, or is this a smaller group, or classes? How do you think about actually providing that mentorship value to leads?

Dustin: [65:28] What's awesome is the scale metric is dollars, and as you've said, as companies grow and get bigger, more dollars go in, and so we don't have to grow our community by 500 to do better, which is awesome.

[65:45] I don't know where the final number lands. I don't know if it's 15 or 50. I don't think it's beyond 100. I think beyond 100, you actually start to need an infrastructure and a division of things that start to make a lot less sense for a really, really, truly mentorship-driven model.

[66:09] I expect it to be dozens, but over time, people are going to cycle in and out. One of the most beautiful parts of working with us is if it's the year that your first-born child walks into the world, your startups going through an M&A process, it just may not be your year to be a syndicate lead, and guess what? That's totally cool.

[66:31] There's going to be a level of activity, and again, this is why the trust piece is so important, where I expect there to be dozens active in a year, but maybe a community of 150, many of which are passive right now for a variety of reasons.

[66:47] I also expect people to peel off and raise their own fund. To some degree, I think that's successful. I also expect some people will peel off and retire. One of the key metrics I look for is, "I cannot wait for the day that we make someone, a syndicate lead, their first million dollars."

[67:04] I sat down with the founder of Creative Market for lunch, and I was talking to him about the creators on the platform, and selling, and stuff like this, and without going into detail, which I probably shouldn't speak of, we just had this incredible moment where their top creators are making life-changing money, and the stories behind it are just inspiring.

[67:28] It brought me back to why I started Maiden Lane, which is we want to, again, use that pool of capital to let other people build their business on top of it and make that money. We're super excited about that, and so I expect some people will roll off, [laughs] and say they've had their big exit, and that's fine, too.

Tyler: [67:48] You spend a lot of time, I assume, with LPs, maybe on not consistent timelines. Maybe these are around fundraising events, or annual updates or the such, but what makes a really good LP today? How are the ones who are leaning in and understanding the changes in the business different from the ones that are lagging behind?

Dustin: [68:12] The landscape of venture LPs, it's a very, very broad term, and one of the things I learned over the last couple of years, it's so broad as to almost be meaningless, or worse, misleading, because you have people who are managing their own family's money on one end of the spectrum, and then you have [inaudible] on the other end.

[68:32] They're both called LPs, but yet, they actually couldn't be more different [laughs] in any term of the word. The people I get most excited about, and I think are going to do the best in venture are ones who've internalized the fact that categorically, venture has not succeeded over the last couple of decades, but that there's very clearly something going on, and that you can succeed in it, and that technology is not optional anymore.

[69:03] It is a part of everyday life, and changing every sector of life, and so they've said, "I get those two realities. I'm not just going to click, and fire into five funds and be done. I'm going to work this category and make it make sense for me."

[69:19] I would say the two high-level things that get me excited are the ones who are starting to make their own decisions about going into companies more directly than through a fund, because it allows them to actualize and articulate their own strategy, which should make the category more profitable for them, which is great.

[69:39] I think it also brings them closer to both their managers and their founders, and I don't see why in 2015, an LP should just be looking at a quarterly emailed PDF that's 90 days delayed. It's just that information is irrelevant. It's an asset class where if you want to be involved, you'd better have really good real-time information and good relationships with your managers.

[70:02] What Maiden Lane is saying, "Good relationships with the founders," and if you can't find opportunity there, [laughs] I don't know what to tell you, because we see a lot of opportunity every single day. I just think a lot of it is blocked and misallocated thanks to this old container structure that everyone is caught under.

Tyler: [70:21] How do you think the world of Series A, Series B, Series C investors will change as online continues to catch fire? For example, you've heard predictions that the future guy who would have joined a fund as a lead investor GP two years ago may just raise their own fund or continue to operate almost entirely via syndicates. Do you see that happening? How far up the value chain does that work? Is this the death of the fund as we know it?

Dustin: [70:51] It's not. The fund as we know it will continue, because the best have made great returns doing it, and will continue to do so. Even internally at AngelList, we don't talk about the disruption of venture, just as I don't think anyone at Airbnb was talking about the disruption of the hotel.

[71:08] The hotels aren't going out of business. Maybe there will be fewer crappier hotels built. "Woo-woo, that's awesome," but Starwood is not going out of business tomorrow, no matter how well Airbnb does. They're actually just different products, and I think that metaphor works well in venture.

[71:26] What I start to see is less of a logical progression up where a lead does well in seed, and some moves up to A to B. What we've seen inside our community, and ultimately why Maiden Lane is a community, and ultimately just about trust, is what happens? Let's say an opportunity fall in your lap. Do a Series C. The company said, "We're doing well. We need a board member to do x and y. Would you consider joining?"

[71:52] Instead of compensating that person with maybe a salary and advisory shares or what have you, why wouldn't you say, "We want to allocate $3 million to your Syndicate. We know you're getting paid carried interest. That's great, and that's your compensation for participating here. You guys will get pro rata rights, and you can participate in the D, and carry it into the IPO."

[72:13] That sounds a lot more realistic, because it's talking about the trust that you have in a proprietary relationship you have, and access that you have. It's talking about the leads value-add, and it's specific and known. It's very marketable to people who want access to that company, and then the way you're compensated is way more interesting [laughs] than a traditional board seat would be, and way more aligned.

[72:40] You're going to help them raise money, close a round, and continue to do so into the future, and so I see it more of this bespoke model.

[72:48] How we think about it at Maiden Lane is all the chaotic work that happens in the seed stage will sit inside the vehicle, and be a part of that communal capital that I spoke about. The reason that at our annual meeting, syndicate leads meet our LPs face to face, and it's not even an annual meeting. It's just them talking about what they're working on and me talking about the state of the market, is so that when that opportunity arises, there's no broker. The middleman's gone.

[73:14] It's like, "Sir, would you be interested in coming in at this stage? We saw that you had invested in the funds that led the Series A and the Series B. You must have some color on the company from there." Hopefully, Maiden Lane was in at the seed. "Tyler is ready to do this at the Series C. Would you want direct access?" That's a relatively easier decision to make, and one that is very adaptable to the online model. That's how I see it going forward.

Tyler: [73:39] For the superstar entrepreneur that just sold their company, they've exited out, they've got an interest in investing, maybe even full time or very aggressively in terms of time committed to it, they're probably getting hounded by every pre-seed Seed A fund out there to come join as a partner, or they have the option of building a syndicate, either with their own audience or with participation from Maiden Lane or others.

[74:07] What advice would you give that person on how to make that decision, of how to go join a fund and become a full-time partner, or try to do it more as part of a syndicate?

Dustin: [74:18] The first step would be just build a simple model to start, and understand the difference between net carry, which is what a traditional fund offers, and deal-by-deal carry which is what Syndicates offers.

[74:33] I think a lot of it just depends on your point of view on which is a better fit for you. You can't forget, management fee calculates into that. Even if someone's made a lot of money and done well, sometimes an income is still important, and nice to them, and right now, Syndicates doesn't offer that. I don't see it as a top priority kind of feature.

[74:55] Doing a traditional fund is a better fit at that point, but that, for me, would be secondary. It ultimately boils down to the people, and again, venture is so much of a trust exercise. If you don't really trust and love the four or five other partners around the table, and you can't see working with them for 10 to 15 years, and getting excited about that, man. [laughs] I don't know why you would join that, period.

[75:22] It was the biggest piece of advice that Naval gave me as I was deciding to move out here and raise Maiden Lane. He said, "Pack light. It's going to be a long journey," which has resonated with me, and it's something I try and live every single day, and, "Make sure you always work with people that you really, really, truly love, and then this business works."

[75:43] Mess with either of those two, and this business gets ugly very fast. [laughs] The Syndicate model can be a fit for someone, especially we have teams that work as twos, as pairs. If you have another partner in the business that is someone that you love and trust, and just really excited to work with on a daily basis, and you like that deal-by-deal economics, it can be a great fit.

[76:02] Maybe that exists in an offline fund as well, and that's awesome, too. It's not really about better. It's about a better fit, and what makes sense for that person.

Tyler: [76:12] I want to be conscious of your time here. You've been pretty generous, and I know we've gone well over what we said we said we were going to when we started recording. Hopefully, we can do maybe a part two of this or something.

[76:23] I think it's actually been really interesting to get an insight from somebody who's not just doing direct investing, which most of the other interviews have been, but actually somebody who's thinking about this from one level of [inaudible] hire, of how do you find the right managers to deploy into the seed stage area.

Dustin: [76:37] Absolutely.

Tyler: [76:38] Maybe if we have good questions that come out of this, we can do a part two. For the time being, for people that are interested in learning more about you and Maiden Lane, and how you guys view the world, where do they find you online?

Dustin: [76:49] Right now, on AngelList. We barely... [laughs] We had a website that was misleading, and confused people, so we pulled that down. Right now, I'm working on the content, to explain everything I just said, on maidenlane.com.

[77:02] Hopefully, by the time this airs, we'll have some presence there as well, to start explaining the mechanics of syndicates, how we see them working, what it means to be a good mentor, and the values that we share in our community.

[77:16] Over time, we're going to be intentionally slow to release who the people are in our community. Again, speaking to that idea of building trust over time, but you'll also be able to see who the syndicate leads are that we back and partner with on a regular basis.

Tyler: [77:31] For somebody who wants to work with Maiden Lane and attract your backing and your support, how do they go about attracting your attention, and then building trust from there?

Dustin: [77:41] I think it follows the same way most people start, in terms of just getting a warm intro that's contextual and understanding. It's super helpful to have already done a little bit of angel investing on your own. It allows us to have the ability to converse.

[77:58] If you just want to be helpful to the portfolio, and you think you have some talent or expertise to bear on that, we're constantly having people ask for things, and so having the ability to point people your way is a great way to just get started, and again, building that trust. So, yeah, just through the classic channels.

Tyler: [78:18] Are you looking specifically, when it comes to managers? You said people that have a background. Do you want them to have done angel's deals before? Should they be having a track record they can point you to, or something totally different?

Dustin: [78:29] Whichever, online or offline. I'm a little bit indifferent. Again, more just someone who wants to mentor and be value-add, someone who has an informed opinion, and is excited about a specific area, and they think they have an expertise that lends them the ability to have a proprietary seed in top-flight startups.

Tyler: [78:49] Do you want to find them, or do you want them to find you?

Dustin: [78:52] I think we're going to be doing a lot of finding them. I think one of the most exciting things about Syndicates is a lot of people who didn't realize that they could be great investors can be, and my hope is that both through the content that we create and the community that we build, that there's people who just are like, "I just never thought of this."

[79:09] I would love to hear that more and more, partly because one of the advantages we have over the traditional funds is diversity actually wins for us. It's not a marketing "wave the flag, hippie hug," like a "Let's go celebrate diversity" thing. It's we really actually do perform better by having a diverse community of people, because we don't need consensus.

[79:32] In fact, we're moving away from it aggressively, and so the misfits, the weirdos, the people that have been shunned by this relatively similar looking and acting and doing group of people who all operate under the same model, they have a place with us, and if you look at the outperforming companies, founders, and investors over the last 20 years, most of them started as outsiders in some way.

[79:58] We just want to bring them in right away and say, "You were said no by every VC. That's a great place for us to start." Now, if it's just a crappy deal, it's just a crappy deal. I don't care how diverse you are, or how interesting you are, it's just a crappy deal. Back to the point on Sumon and his view for international, that wasn't a theme of the day when we started doing it.

[80:22] Funnily enough, it now, quickly is. I don't think that was just us or Sumon, but people started to realize, "Oh, wow, there's real uplift happening here. There's massive product opportunities, and there's a lot of interesting stuff happening, and so maybe we should spend more time there."

[80:39] Ideas like that, that are, again, informed or exciting and then outside of our peer view are exactly what we want, and so, yeah, I expect that we'll be hunting some people down.

Tyler: [80:49] Nice. Any parting thoughts you want to leave us with? No? Awesome. Thank you for your time.

Dustin: [80:54] Thank you.

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