Building a VC Firm to Last | Hussein Kanji from Hoxton Ventures

[00:00:00] Hussein: We want to build something of value that's enduring. We started as a project and then we've gone from a project to a boutique, uh, as a venture firm. Now I think we're making a conscious decision to build an institution. Partnerships when they're done well work really well because the partners have different strengths and weaknesses and you can talk about things in a very constructive way.

[00:00:20] Hussein: If you bring newer people into the organization as partners. How do you get out of the way so that the newer people are capable of succeeding without you kind of breathing over their necks? If the personal brand is too strong, and I would argue Kleiner had a really good brand and John had a really good brand, but you know, you then have to like figure out how to get the other people in the organization to also rise up.

[00:00:46] Hussein: How do you build a system inside of a firm to allow those conversations? flourish without people feeling bad because if you can do that you build a really strong core out of the firm. I call it, it's much better than [00:01:00] being a firm. Now the problem being in a firm is you often have to deal with things that you may not want to deal with, right?

[00:01:05] Hussein: You have to share with other people, right? A solo GP can move fast but there is no reason why a good firm can't also move fast.

[00:01:14]

[00:01:18] Rahul: Welcome back to Understanding VC. I am your host Rahul. Understanding MBA on a single subject, venture capital. Today, I'll be having an in depth conversation on building enduring VC firms and succession planning with Hussain Khanji. Hussain is a partner at Hoxton Ventures, an early stage VC firm based in London.

[00:01:37] Rahul: Prior to Hoxton, he was an associate with Axel Partners. Now let's talk to him.

[00:01:42] Rahul: Hi Hussain, thank you so much for joining me today.

[00:01:44] Hussein: Hi, Raul. Thanks for having me.

[00:01:46] Rahul: So, do you think, Hoxton is going to be around in next 20 30 years?

[00:01:52] Hussein: It's a good question. I think if you'd asked me like four or five years ago, I wouldn't have given you very much of an answer. I mean, I am [00:02:00] hoping like I'm successful enough that I don't have to be working 20, 30 years from now. I am in my mid forties. And so 20, 30 years from now and put me in my mid sixties or my mid seventies.

[00:02:10] Hussein: Right. And you know, you think of venture firms typically, As one of two things, either their institutions or their shells around the person who's writing the check, and I would have probably defaulted into the second, which is it was a shell around me. So, you know, you have a firm or you have a company or fund, but it's not a company or fund in and of itself.

[00:02:33] Hussein: It's a company in a fund to enable you to do your job. And then once you're done with your job, right, there's not much of a reason for the company or the funds that exist anymore, because, you know, the company and you, the fund and you are like intrinsically linked in that sense. I think, like, four or five years ago, we started thinking about this.

[00:02:52] Hussein: And, and I think, you know, when, when you're thinking about the next years, it's not going to be [00:03:00] you like 20, 30 years from now, often is not going to be me. And then the question is. You separate you from the firm. And if so, then do you want the firm to continue? I don't think that's my decision as the founder.

[00:03:15] Hussein: I think that's the decision of the people that we hire. And the one thing that we were definitely doing as a company is we needed to hire some people because we were running out of capacity and we, we, we just to do venture well, it has to be more than one or two people around the table it partnerships when they're done well work really well because the partners have different strengths and weaknesses and you can talk about things in a very constructive way but it's really hard to do that like that's a whole topic in and of itself and how to create like partnership culture that's like open and transparent and honest and like doesn't withhold Thank you.

[00:03:48] Hussein: But then as you look to add people to the partnership, you know, and. It's, it really becomes more their choice as to whether they want to be there for 20 or 30 years. And then we've added two [00:04:00] people in the last, in the last year into the firm, both of whom are like emphatic, like, you know, if they, if they had a choice, like very clearly in one camp, if they want the firm to be an institution, I'm probably more neutral about this.

[00:04:15] Hussein: Like, you know, for me, it's like a, it's a, it's a shell, but for them, it's like, we want to build something of value that's enduring, right. Right. You know, there was a time in Europe where there were no venture firms like we came into that and we started as a project and then we've gone from a project to a boutique as a venture firm.

[00:04:33] Hussein: Like, we're a good boutique, but the question now is, like, the boutiques don't last, right? Because boutiques are very tied to the people who are in the boutique, is now I think we're making a conscious decision to build an institution. That, and if you build the institution for even 10 years into the future, you know, it would be a really bad institution or weak institution if it doesn't exist 20 or 30 years into the future, and kind of by definition doesn't then exist for like 50 to 100 years into the future.

[00:04:58] Hussein: I think we're trying to [00:05:00] build like an enduring firm, you know, that starts in Europe. You know, on the basis that there was no one doing this well in Europe and on the early stage side, but become something much bigger than that over time, because, because it's trying to invest in itself and build something at scale

[00:05:15] Rahul: Yeah, but yeah, why don't a lot of people do this, like try to build an institution?

[00:05:22] Hussein: is really hard. you know, it's not like a corporate, these are partnerships and partnerships work well when the partners are involved. And eventually the partners get less involved, right? Because if you're successful, you know, you don't necessarily want to be as involved anymore. Right? You want to go and do other things with your life.

[00:05:44] Hussein: Like there's like working and making money and great investing, but there's like a thousand other things that you can do with your life, including a whole bunch of like civic stuff and charitable stuff. Like, you know, so people, people bow out of the partnerships and because they're partnerships, not [00:06:00] corporates.

[00:06:00] Hussein: Right. Finding replacement people like replacement partners into the, into the firm, you know, that are equally good and like, you know, like, you know, partnerships are unique structures, right? It's like, you know, think about, like, replacing your wife, like, or your, your husband, like, it's, it, you know, it's not like you can pick anyone off the street and kind of make it work.

[00:06:22] Hussein: There's way to do it. It difficult to do. And then if you bring newer people into the organization as partners, how do you get out of the way so that the newer people are capable of succeeding without you kind of breathing over their necks? And obviously, if you built a partnership, you know, there's always going to be a deference to you because you kind of helped create this thing. And there's always going to be some motivation for you to kind of reap the reward of the institution that you're building. But if you reap too much of the [00:07:00] reward, and I would argue, if you reap like any of the reward into the future, then the younger talent, like, doesn't want to be there anymore, right?

[00:07:07] Hussein: They go off and build their own fund, especially these days, where it's actually very easy to build a fund. And then how, you know, and then how do you get out of the way when... They can make their own decisions and some degree like kind of make their own mistakes and most adventure like it's a power law industry right so very small handful of companies drive the returns which means most of the time you're going to get it wrong.

[00:07:27] Hussein: And then how do you let the people who are newer in the partnership which is usually synonymous with younger individuals not make those mistakes but also be. Allow to make those mistakes without you getting in the way it is really hard and most venture firms. You know, I think there are very few that have, like, transitioned from one generation to another.

[00:07:51] Hussein: And then 1 generation to another, and then 1 generation to another again, without losing, like, the pedigree or the status of the [00:08:00] competitiveness of the firm, like, you know, they do the transitions, but they're not the same firm in the 2nd generation of the 3rd generation of the 4th generation, like Kleiner used to be a phenomenal fund, like, when you thought about the 2 best funds in the world, it was Kleiner and Sequoia, I don't think Kleiner became, like, for a while, it kind of fell off the map, like, it wasn't the same firm as Sequoia, Sequoia has always been the same firm, and Sequoia has done it really well, I think Greylock has done it pretty well, I think Accel has now done it pretty well a couple of times, but it's like hard, right, to do this stuff, and it's largely like this, like, how do you How do you empower?

[00:08:37] Hussein: How do you find them like the new partners? How do you empower them? And then how do you make sure the economics actually line up in the right way for everybody?

[00:08:46] Rahul: Yeah, and I think going, uh, with Kleiner, I think the, the personal brand of Johandor is probably bigger than, and that helps, uh, I mean, that, that is not, that does not really help [00:09:00] people who are coming in, right?

[00:09:01] Hussein: Yeah, so I think client like it was and Kleiner was so successful like in its heyday that the people became really say it wasn't just John. It was also Vinod Khosla, right? And so Vinod left to go do his own fun Khosla ventures and John. Like ran the firm and John was such a force of nature. And remember Kleiner did a generational change, right?

[00:09:21] Hussein: They went, it was Kleiner, Perkins, Caulfield, Byers, and they handed the keys over to John, like who then ended the node, who then ran the firm. And then there wasn't a next natural step until very recently where it became Amun when social, when he left Social Plus and joined, but like, there was a time where Kleiner, like about 10 years.

[00:09:41] Hussein: Where John was not, like, in his 40s anymore, like, John was in his, like, 60s, like, you know, and hadn't handed the keys over to this younger generation just yet, and there wasn't a next generation kind of heir apparent, you know, like, it's... It's it's hard right and and like this is not like a small unknown firm.[00:10:00]

[00:10:00] Hussein: This is like this was one Yeah, this is like like number one or number two like depending on who you you know back in the day It was Kleiner and Sequoia like so if Kleiner can't figure it out Like this is a hard problem. It's not like they have like no lack of resources or no lack of intelligent people.

[00:10:18] Hussein: And then this personal brand overshadows the firm, right? Like this is on the one hand you want the personal brand because that's what like founders and come find you. But if the personal brain is too strong, and I would argue Kleiner had a really good brand and John had a really good brand. But, you know, you then have to like figure out how to get the other people in the organization to also rise up.

[00:10:38] Hussein: And it's not, it's not easy, right? Like, and it's not something that you can just wheel into existence. There,

[00:10:43] Rahul: And also, because it's a partnership, there's no leader or leadership, right? So it's just a bunch of people working together. Does that play a

[00:10:52] Hussein: there isn't, there isn't, there isn't a CEO. Like, it's not a command and control organization where like, there's like, you know, one person gets to run [00:11:00] something by fiat and then everyone kind of follows. It's a partnership, right? Your wife would get very offended if you said, like, I am the boss of this family, right?

[00:11:08] Hussein: It doesn't work that way. And you would get offended if she said the same thing on her side, right? Like there is a partnership, but you need one person. In to run, at least in some of these years, like the, the strategy or like the, you know, the, but, but it's a discussion around the table with everybody. so it's not 1 person running it in the absolute.

[00:11:29] Hussein: It's like 1 person running, managing, proposing, but the whole partnership kind of behind, or you don't have a partnership culture at all. You can do it. Like, but part, like these firms don't work when like they will work as solo GPS. But they, and they'll work as partnerships, but they won't work when there's like a commanding control, and you just don't hire the best in class people, like the best in class people want to be autonomous, right?

[00:11:55] Hussein: And they want to own these things. And like, and it's the partnership, like nature of venture, [00:12:00] like they get to. They get to own this stuff, but they're in a, they're in a unit environment that is collective. And yeah, and no one person can kind of dictate that by fiat, like in that respect. The founder might be able to, but then this complicates it, right?

[00:12:16] Hussein: Because if you're going to do generational change, the founder has to make themselves redundant. And then you lose the ability to guide the company from, like, the one central source and you have to, and you really have to find the next person who can, like, build the company or build the firm into something even bigger.

[00:12:32] Hussein: Like, it's, it's so you need, you need the person because without the person, it's theoretical, right? Like, so someone has to be able to rise up to that challenge and then you have to empower them, which is more organizational. Um, difficult and we are going through this, like right now, like there's a number, this is probably like 30 percent of my time right now as, as like a, as like a founder of the firm is like, I'll write or [00:13:00] recruit a great group of people around the table.

[00:13:03] Hussein: I'm like, what are the strengths and weaknesses of everybody around the table? How do I optimize for everyone's strengths and where there are weaknesses? How do I slot in another person who can then compliment? How do I make sure that the culture around the table is everyone can be open, transparent, like be very willing to debate and engage and be critical?

[00:13:23] Hussein: Because like these things are so uncertain. You have to have like good debate. No one's going to be shy and not be like, like be reluctant to participate. It's like, how do you really set up the cultures? Like A group of people, and we've never been a group, but we've always been to historically. So how do you now go from two to a group?

[00:13:40] Hussein: And then how do you make sure that some of those folks in the group are then empowered to carry the firm? Because like, in 10 years, I'm hoping I'm not full time in the firm. Like, you know, that's a new group of people that are like, that are carrying the torch in many ways. And I don't need to solve this tomorrow.

[00:13:57] Hussein: But if I don't start thinking about it today, [00:14:00] I'll be too late for the game. Okay. And that's one of the huge problems. I think a lot of people, when they think of a generational change, they do it when they need to do the generational change. Like, you have to, you have to, like, predict this stuff, like, 10 years in the future, but you have to set all these things up, and it's not like, it's not like people grow on trees, like, where you can say, like, I'm missing X, so I'm going to go find, like, it doesn't work that way, right?

[00:14:24] Hussein: It's a very organic process to be able to, like, build this thing up.

[00:14:28] Rahul: yeah. So in your mind, you will be part of the next three, four funds of Oxfam or maybe two, three?

[00:14:36] Hussein: I would say definitely the next one, and I would argue probably the next two. And the third one is TBD. Remember, these are like three year funds, so like that's committing now for six years. And then there's a tail where you're, and then you're still managing the fund for another seven years. After that, you know, if you say six years from now, so the next fund is probably next year is the [00:15:00] 2024, and then the one after that is 2027.

[00:15:03] Hussein: And I'm not done until 2037 or 2039. It's 2023 today. So that's like 14 years from now. I'm in my like mid to late 40s. That will take me like close to 60. Like, you know, a third fund on top of that takes me like close to like my mid

[00:15:23] Rahul: Yeah. Yeah. I think a lot, a lot of people have, uh, when an idea of how many funds they will do, but then they don't think about a transition, I

[00:15:34] Hussein: Yeah. Yeah. Yeah. And I, I talk about this like pretty actively with my wife. Like who's like, you know, okay. Like we, like we've been really lucky, right? Like our birth fund was like a really good firm. And so, like, from a money perspective, we, we did well, and our second fund, it's like three times the size of our first fund, and it feels like it's going down the same path, and like, who knows, like, the market's much more [00:16:00] turbulent today, like, these ideas aren't easy, but, like, the market hopefully should, like, by the time this fund is, like, at the end of life, should be in a much better shape, and, you know, if we get to, If we get to deliver on the second fund, realistically, like we probably don't need to work for a living, like, you know, like, you know, like the two funds, if they're both like equally good, like set you up for life, like, you know, even the first one sets you up in many ways.

[00:16:25] Hussein: And then the second, the second one is just like, at that point, money just becomes like, like, it's just a scorekeeping thing. Like, it's not a fun thing. And so, you know, and then our third fund is twice the size of the second fund. These magnitudes get bigger, right, because if you deliver the same performance, but you're doing it with like 10 times as much capital, you know, how many of these funds do you really need to do?

[00:16:49] Hussein: Now, you have to do them, right? If I step down tomorrow, like, my employees are going to be really annoyed, right? Because, like, it is today still a boutique, like, it is still, like, [00:17:00] They're counting on me to, to do what I need to do. And so I'm like here for a little, like, this is my firm. Like I'm not walking away anytime soon, but like I'm starting to build in for the next 10 years where that could ultimately be a choice.

[00:17:11] Hussein: So then when I'm in my fifties and my sixties, I can make that call. If I don't want to make that call.

[00:17:16] Rahul: yeah, yeah, that's, LPs was another thing that I wanted to bring up. So do LPs make it harder, for, uh, partners to build a mentoring firm in the sense? Like, they build a relationship with you and they don't necessarily trust who you bring in.

[00:17:31] Hussein: No, I would say, I would say almost the exact opposite. Like these are, these are positive discussions. In fact, I wish LPs had more of them sometimes with us. Like, you know, There are lots of lessons like we've had, we've been lucky in, in like Europe, the best fund in Europe is index and index has, has, has built itself up from like a tiny organization.

[00:17:54] Hussein: Like people forget how small index was like in the mid to late nineties and, you know, they were [00:18:00] like almost like a, like, like a project, like they were doing SPVs, like, you know, they weren't called SPVs back then, but like, you know, they were doing deals. And then they turned it into a fund and then they built the fund up into something that was really good in Europe.

[00:18:15] Hussein: And they made this really risky move of like opening up in the U S and they, I mean, the risky move paid off, like they're, they're a top fund in the U S. And, you know, they have a growth fund, an early stage fund, the U. S., the U. S. Presidents, the European presidents are now in New York as well as California.

[00:18:32] Hussein: Like they are like proper, like institution, but they started off from very humble beginnings. So there are lots of lessons if you're an LP and index to share with someone like me. And I, I do draw upon our LPs to like talk about this stuff, LPs. They don't want to write like one check and then go away, right?

[00:18:54] Hussein: What they want to do is like have a mechanism where they're investing in the fund. The fund is delivering for them [00:19:00] and the fund is doing this consecutively, like fund after fund after fund. So if this fund has longevity and can continue to perform, like that's a good thing for the LPs, not a bad thing for the LPs.

[00:19:11] Hussein: The hard thing for the LPs is when they've invested in you, because you and the fund are like synonymous. You know, how do they know that the next generation is going to be as good? But like, you know, when you think about like some of these great funds, like an axel is a good one, like to think about, like Arthur Patterson and Jim Schwartz set it up.

[00:19:31] Hussein: But the person who really put axel on the map in many ways, which Jim Breyer. And Jim was the new generation who then really took the firm and the firm was like a good firm like this is not like really like made it like he's the guy who did the Facebook deal right like Axel became like a behemoth under him and it wasn't just him it was like a partnership like there was someone else actually managing like day to day but like he he was like the inherent leader of the firm so people have done these transitions and so like my hope I [00:20:00] don't know if we're going to do it but my hope It's like our next generation like outshines me because then the firm actually has a real chance to build a firm like, you know That would be a win and that would be a victory for me not like a failure Like I want someone to be like ten times better than me in the partnership because then Austin is 20 a 20 30 year old

[00:20:20] Rahul: Yeah, it's not a deal shop. So, what are the benefits of doing, uh, building an enduring firm? I mean, then you have this relationship with LCLPs, which makes it easier. Besides that.

[00:20:32] Hussein: I don't know if there is one advantage over the other, like I would argue like, you know, there is, there are advantages to being a solo GP and there are advantages to being in a partnership. Like, and you can make the argument either way. Like my heart is in the partnership because I think when you're surrounded by other people who are as good, if not better than you, you make better decisions.

[00:20:55] Hussein: And if you take that away, I think I'd be a, I'd be a worse investor than a better [00:21:00] investor. And similarly, I think going from like a partnership that is more of a boutique to something that is an enduring institution. You know, there are things that institutions can do that boutiques cannot do. Index can now do growth investing, even though it started off doing early stage investing.

[00:21:17] Hussein: So it gets multiple shots to make money. I don't know if we necessarily want to be a growth oriented investor. We've always been very rooted in early stage, but there are things that we can do as an early stage investor if we were more of an institution and less of a boutique is the benefits of scale, scale of capital, scale of people, right?

[00:21:37] Hussein: You know, even if I wanted to do a ton of stuff, if I had to do everything in the firm, I wouldn't be able to do it right. I would just run out of capacity and run out of bandwidth. So you get some leverage by building. What looks more like an organization.

[00:21:52] Rahul: Yeah. And, so, if you want to build a great firm, then, how do you go about doing it? I [00:22:00] guess the one thing you should not do is name it after yourself.

[00:22:04] Hussein: Yeah. I mean, even then I, I know APCB, like now, like referred to as Kleiner is named after the person, like named after Eugene Kleiner, you know, Axel is intentionally not named after a person like it is more, more generic in the title in that sense, you know, Khosla is definitely named after Binod. And I'm not so sure Khosla, like is designed to be a long term institution.

[00:22:29] Hussein: Like, I don't know if that's the intent. Yeah. Like, there's gonna, there's a real, that's a real question mark in my mind as to how they're going to build that firm, because it is very much bent out, um, it's, yeah, I mean, so I would say, yeah, probably not naming, like, naming it a little bit more of an open ended vehicle, like, probably makes it a little bit easier, but I think even if it's named after a person, it doesn't, I think it's more of awareness the firm want to take itself, and I think ultimately it boils down to, like, who is the firm able to [00:23:00] recruit?

[00:23:00] Hussein: Thank And, like, how does it think about this is all soft stuff. Like, how does it think about culture? Like, how does it think about empowering people? How does it think about, like, friction when there's, like, debate around the table? And there's, like, no right answer. And some of these things, like. How do you, how do you find people who are complimentary, but not all the same?

[00:23:19] Hussein: Like, you know, these are like, this is HR stuff, like it's soft stuff. Like, but yeah, that's what you have to spend a lot of your time. And, and the answers are not clear cut and they're not like overnight. They are like longterm, like you meet people. You get to know them, you decide if you want them to come into the firm or not, like, it's like a slow motion exercise, which is why I think it takes like a lot of free thought to be able to do this, like, you have to be planning way in advance, actually, when you need it to do it well, and I think the more, I would argue the more open you are as a culture, the more equal you are as a culture, like, from an economics [00:24:00] perspective, the more you tolerate debate and defense as a group.

[00:24:04] Hussein: The easier it is to build these types of things, but at the same time, you have to unify around the same core theme. Like, if you have five people, seven people, they each want to do totally different types of things, and there's lots of dissentive opinion, like lots of good friction in that sense. There's not a unifying theme pulling everyone in the same direction. Probably, I mean, it's probably going to fracture, right? And we've seen firms fracture before. Um, like, people forget this, but like, the precursor to Lightspeed, Was a fund called Weisbeck and Greer, and Weisbeck and Greer basically split in two, and one, one, one half of it became Lightspeed, and so you think of Lightspeed as this very long term firm, but it was like rooted in this thing called Weisbeck, which didn't last, uh, you know, there were young folks who left other firms to form Redpoint, like, around the same time the benchmark set up, like, you know, like, you know, and those old firms then kind of went away, Because the young guard went off to go build a new firm.

[00:24:59] Hussein: Like [00:25:00] you need these unifying themes. And if you don't have them, like you, you caused dress fractures in these partnerships, it is all like, it's all like hard stuff. Like, like as in, because it's human, like it's not, it's, it's not, it's not robotic or mechanical. Like it's a lot of, it's a lot of ambiguity and uncertain answers and like.

[00:25:19] Hussein: More like the direction you want to go versus like the prescriptive thing. There's not like an HR guideline that you produce with like 20 pages and like that's the, you know, that's what everyone, it's not like that, like,

[00:25:33] Rahul: So, besides recruiting, it's also like a developing, people that you bring in, right? Like you said, you know, young people with venture, you make more mistakes. So then you need to guide them over a period of time. I think a lot of firm firms do that, especially with the investing term, investing team.

[00:25:51] Rahul: But, let's say if you look at a fund like Sequoia or Axel. there are these other operations, members and other supporting members, right? There [00:26:00] is no sort of like, what do those guys do? Like what is the progression for those guys?

[00:26:06] Hussein: there isn't much of a, there isn't much of a progression From like, but there isn't much of a progression in venture period, right? Like, so even, even on the investing side, I mean, people have these like analysts, associate principal VP, like type of hierarchy, but there's basically like partners who write the check, right.

[00:26:26] Hussein: And non partners who help the partners. And at some point the non partners want to become partners, like, so call the title whatever you want, make as many layers as you want, like, you know, I think the later stage you are, the more work you have to do, the more layers you need, because you need, like, there's delegated work that you can kind of give, the earlier stage you go.

[00:26:44] Hussein: The more flat it needs to be, because there's really not that much work to do. So either, like either you understand or don't understand. So even within early stage, there's not many levels in the investing side. And similarly, there are not many levels on the back office side, like the support, [00:27:00] you know, but we, we run these, like, these are partnerships, right?

[00:27:05] Hussein: Like, you know, once you make partner. There's not like a little neck, like there's no partner, like senior partner, man, like it is a partnership, like in a six person, seven person, ten person organization, it doesn't make sense to have like these kinds of things and similarly, like, so we have a head of legal.

[00:27:23] Hussein: It was like super strong. Like she's really good. And like, you know, I think she will probably like, I hope that she will stay in that job. Like, there are lots of new things that keep coming up on the legal side. Like, you know, like safes weren't around 10 years ago. Right? So like, there is like real impact.

[00:27:39] Hussein: But like, it's a question of do you want to be the best lawyer? First, like you want to be the best lawyer in the world in the context of a venture fund, and you can do that and be the best. And then you get paid at the fund scale. And there's more carry coming. We share our carry with our back office as well.

[00:27:54] Hussein: Like, you know, there's a financial reward for being inside the firm and being the best lawyer in [00:28:00] the firm. But there isn't like a job after that, right? This is like, in some respects, venture is very artisanal. And once you're an artisan, there's no, like, there's no next step. Like, you know, this is kind of what you do for the rest of your life.

[00:28:15] Hussein: And the same is true on our back office. Our head of finance is very good. And then I think over time, the back office is a little bit different. Because as you get bigger of the firm, it's impossible to support, we used to support the entire firm on the back office side with no people like it was just me and Rob doing it and then one person and now we have like four or five people in the back office and we will probably end up scaling that to five, six, seven people because like they will need some juniors because there's like, there's more funds to manage, right?

[00:28:43] Hussein: So there's more work to do. The investing side doesn't scale up nearly the same way from a junior perspective, but even the investing side, like we're looking for more partners to kind of join the firm because we're scaling up, but once you get to kind of your steady state, you know, this is a job where you have to, you have to enjoy the [00:29:00] job, not the growth of the firm, right?

[00:29:03] Hussein: Like it's like, I, I, you know, I do this, like I said, I'm very neutral on institution versus boutique. I do this because I love investing and I love like finding these companies and being a board member. Okay. I don't need a promotion or to do some new thing. In fact, actually managing the firm is like a new thing for me.

[00:29:22] Hussein: And if I, if I had an idea, like people, this will sound counterproductive, but like, it's my firm. So like, I, I, I, I, I owe it to myself to do these kinds of things. If I had a choice to like have a job back at Accel and someone else is running all the day to day, and I just get to focus on my investing, I actually think I'd do that.

[00:29:40] Hussein: Like I would have a, like, I love the investing job so much. I do the managing job because it's like my firm. And so I have to think about that. But if I didn't have to think about that, I could just focus purely on investing, focus purely on investing. Like, I don't want to run a firm. Like, you know, I just want to do my deals and make sure like the [00:30:00] company has become as successful as possible.

[00:30:01] Hussein: That that's what gives me motivation. But I have to spend like, like I said, I'm spending like 30 percent of a very large portion of my time thinking about this stuff, but I have to, right? Because if I don't. There's no one else that we're having around the front to do it and Excel like I would be very happy.

[00:30:15] Hussein: Jim Breyer gets to do that. And I just go back. That's like, you know, I'm not Jim anymore. But, you know, you know, it would be, uh. The, the, the extra stuff is not like stuff that gets me super excited or like makes me feel like, you know, some people love running things cause like they want to be the boss.

[00:30:33] Hussein: Like I don't want to be the boss. Like I just want to do my investing job. I think most people who are on the venture side just kind of want the platform to take care of itself. They don't want to worry about fundraising. Like they don't want to worry about this stuff that adds friction. All the friction to go away, and then they can purely focus on like how to generate return.

[00:30:51] Rahul: Yeah. This is exactly the reason why there are not many firms. Yeah. Um, [00:31:00] also, could you please explain to me how the incentives are like aligned cross partners and also the back office? Because you know, I read somewhere that it takes two to three funds for the partners to build up their carry in the fund.

[00:31:17] Rahul: What does that mean? I didn't fully understand that.

[00:31:20] Hussein: I'm not so sure I understand. I mean, I think generally speaking, I mean, these firms are all kind of 2 and 20 structures and there's lots of variations that isn't a bunch of firms of 2 and a half. And then some firms are as much as 30. But basically, you know, 2 percent a year comes to the company to the company.

[00:31:38] Hussein: To the management company to pay salaries, et cetera, and it declines over time. So it's 2 percent at the investment period. And then it's different firms have different formulas. So basically each drop, which is why you have an incentive to raise a new funds that there's a new pot of money kind of coming into to kind of keep the lights on, you know, and then.

[00:31:56] Hussein: Whatever you generate in the way of like profits, 20 percent of [00:32:00] that kind of comes to you and 80 percent goes back to the LP that paid everything back. And in some cases in Europe, it's like a hurdle. Like, Americans don't have it. Europeans do, uh, you have to give a little, you know, you can't just get the cash back, get to give the cash back and all that something.

[00:32:14] Hussein: But like, once you're past that, you know, your, your profit sharing with the firm, the carry takes years to materialize, like, because. Yeah. You don't have like the big exits, the IPOs and like the big mega acquisitions. I mean, maybe you're really lucky and that happens in like year two, but that's very unusual.

[00:32:31] Hussein: Like it takes a long time to build the good companies. It takes a lot of, it takes a lot less time to lose the bad companies because they run out of cash, right? They kind of go bust. So you're playing for the carry, but it's like a 10 year, you know, it's a 10 year horizon. And like, you start getting real carry at year seven, eight, nine, 10, not in years one, two, three. And then if these funds. Or over, like, you know, every three years apart, you know, it's like 15, 20 years until, like, you get the material and [00:33:00] these funds get bigger over time. Like, and so the carry, ideally, it's the fund multiple is the same. Every part is much bigger. It just takes a long time to be able to earn the carry and kind of get the carry and then on the management company side, this 2 percent like, you know, keep stacking at every single fund, you know, it takes a while, like when you're tiny, you basically pay yourself very little, like, because there's not much fee income, but, you know, if you end up building a billion dollar fund, you have a surplus of fee income, and so the hard part is How does that fee income, like the carry is easy, right?

[00:33:36] Hussein: If you're investing and you're making money and you're generating big outcomes, you know, you get a cut of what you're generating, right? Like that is more open and shut. It's hard for someone who says, I built the firm 20 years ago. I should get a big shake, stake of carry and the thing that you did because you know, you may not be around.

[00:33:56] Hussein: It's clear that the carry, the overplay. Maybe a little bit of the [00:34:00] profit goes to the person who was there before. But really the bulk of the profits gets shared by the people who are actually generating the profits, the management income, which eventually gets large, but is never large in the early days.

[00:34:12] Hussein: You know, the people who sacrificed to put that stuff together in the early days, should they get any of it in the future years, and, and how do you distribute that? Like, you know, especially once it starts generating surpluses, like all this doubt, like there's a time where you're basically subsidizing the firm.

[00:34:29] Hussein: Because the firm doesn't make enough money on its own to really do this and you may be subsidizing by just taking like a way below market salary, you may also be putting money into the company, but eventually the firm becomes like a billion dollar fund, they can pay everyone salaries like without blinking and add more in a surplus profit.

[00:34:45] Hussein: In companies house, you can look at like the surplus profits of like AAL or an Axel Atica. The highest person that atomic Axel this year, I think was paid 7 million pounds and like, as a, as like a distribution from the management company nonprofit share. This is [00:35:00] like, like effectively salary, big number, right?

[00:35:03] Hussein: 7 million pounds. Like it is a big number. Uh, so these profits can get very, very large, especially partnerships don't grow like purport, like, you know. You know, they don't grow by the same size. So as they get bigger and bigger in terms of funds, they don't necessarily grow by the number of people the same way.

[00:35:19] Hussein: So you get, you get surpluses. And I don't know if there's a good formula for this, like, I think the best formula that I heard is like, as you are retiring and stepping off, you basically get a little bit of a tail, so you continue doing your board work, you don't get your full amount of salary, etc., and it kind of winds down and kind of tapers off.

[00:35:43] Hussein: and you might get a little bit from the next one for having served like a long tenure inside the firm. The firm basically takes care of you, and then it tapers off eventually to kind of zero in the new guard that kind of kept all this stuff. And that way, the old guard who put up some of the sacrifice get a little bit of [00:36:00] reward and the new guard gets most of the reward in, like, after a certain amount of time.

[00:36:04] Hussein: But this is like where it's, it's, it's not clear cut. It's not like there's a book written on this stuff. It's not super trend. Like, I feel like venture has become super transparent about like deals, like there was a time where people thought like the term sheets were black boxes because like, but now they're like blog posts, like everyone understands like liquidation.

[00:36:28] Hussein: Like, it's just very well understood the mechanics of like how GPs and like partners inside of funds and how partnerships kind of divide up the soils. Like both on fees as well as carry like it in people's heads, but it's in the people's heads who are in the firms who've done all this stuff and like, and many of these firms have iterated, like they haven't come up with the perfect formulas that have changed over time to try and figure out how to balance all these competing interests.

[00:36:58] Hussein: How do you take care of the old [00:37:00] guard? And how do you make sure the new guard? Like is also paid fairly and like you learn things sort of by screwing up, right? Like, you know, you end up with like a superstar in the company who then leaves to go join another fund or go start their own fund. And you're like, um, and why did they do this?

[00:37:17] Hussein: It's like, usually boils down to culture and economics. And so then you have to iterate on culture and economics so that it doesn't happen again the next time around. So like, but all of that knowledge is like, it's, it's like very much of a black box. It's in the firms who've done it before. It's not, it's not like widely available on podcasts or blog posts, etc.

[00:37:38] Hussein: People don't talk about it like, all that much. And the other people who kind of sort of know, but again, a little bit indirectly are sometimes the LPs who've seen these constructions. So I've relied on other founder, like other founding VCs and LPs to help me fill in the gaps to say what's worked, what hasn't worked, like how do you really make this?

[00:37:59] Hussein: And, you know, one thing that [00:38:00] from a principal perspective that we were there from day one is we're just always going to divide the pot equally on the carry side, you know, as we, as we add another person. We just divide by n plus one, and we think about that, like, because then do you really want to share, like, an equal slice of the pie, if the pie is going to be fixed, then no, right?

[00:38:20] Hussein: If the pie is going to grow, then yeah. So, like, it forces you to think about, like, growth in the firm in many ways. And the management fee side, we haven't figured out yet. Like, we don't know what the right answer is. Like, we are still iterating through how to do this. And again, I'm not thinking about like today.

[00:38:35] Hussein: We figured it out for today. I'm thinking like 10 years from now, like when I'm gone, or 20 years from now when I'm gone. Like, how does this really work? And how does it stay in a virtuous cycle for everybody? So like, you don't have to keep coming back to it and revisiting it every single fun cycle. It's not, I haven't figured out the answer.

[00:38:52] Hussein: I'm like super happy to take advice from anybody who has figured it out. Because I haven't, I haven't seen a formula that, that seems to me like make perfect sense.[00:39:00]

[00:39:00] Rahul: So, um, in terms of carry, I thought that, you know, you only get carried for the deals that you let.

[00:39:07] Hussein: No, no, it depends on the firm. Like it, it, it, so some people, sorry, some firms do that. Like they, whatever you did, you get, and then maybe the firm takes a tax on that. And, you know, so 70, like, you know, I'm making like, it's these, again, every firm is different, right? So maybe you generate some wealth. You know, 75 percent of that flows to you.

[00:39:29] Hussein: 25 percent goes back to the firm and gets distributed across everybody. The challenge with that is you're working in a power law industry where it is very unlikely that you will have more than one outlier in the fund that generates the vast majority of the wealth. And you probably have four, five, six people working in that firm.

[00:39:51] Hussein: So one person ends up getting lucky. Now, if the same person gets lucky fund after fund, after fund, after fund, [00:40:00] like all the outliers are always in one person's camp and not in other people's camps, but we all know that certain markets get hot and certain markets get cold. And some of these outliers are driven by what's hot in the market, right?

[00:40:11] Hussein: Like, because you're predicting 10 years in the future and you don't know what's going to get hot. So maybe this time the enterprise software business that so and so did is the one that generates all the wealth, but the next time it'll be the consumer internet company that another person did that generates all the wealth.

[00:40:27] Hussein: And if you give 75 percent of that wealth, To the person who did it and not back into the pot, then, you know, the other people are going to get very disenfranchised and the firm kind of falls apart. Right? So there's, if you concentrate too much of the thing into the person who did the deal, then the person who did the deal benefits a lot and is really happy that everyone else is disgruntled.

[00:40:49] Hussein: If, on the other hand, you give very little of the thing to the person who did the deal, then that person quits and the person who was the rainmaker in your firm is now frustrated and is gone. And so that doesn't [00:41:00] work. And I think the cleanest and a few funds have now done this, like benchmark was famously the pioneer for this we've done it, but yeah, it's just like, that just makes it really easy.

[00:41:11] Hussein: I have heard of a, the most complicated version is a Swedish firm that I know that every year fits around the table. And like, this is hard, but partners reallocated amongst themselves. So they talk among themselves and they say, well, let's like seriously take a look at ourselves and what we're each contributing into this partnership.

[00:41:35] Hussein: And, you know, So and so is contributing a lot more because they've done way more of the more interesting investments. So maybe I should give up some of my carry and give it over to that person and they rebalance like, I mean, imagining the level of trust that you need. To do that, because if you're, if not the person saying, give me more, it's the other people around the table saying, take more, [00:42:00] like, because if the person is saying, give me more, it's a pretty awkward conversation.

[00:42:04] Hussein: Like, it's like, people are just going to get annoyed. Right? So, like, it's hard, right? To do this. I don't know if that model works. I mean, I think it works for them. I don't know if that works. Although it seems really hard. It also seems really hard to do that every year because. It keeps changing. And like, these are 10 year cycles and one year to the next.

[00:42:23] Hussein: I don't know if you really know all that much. And what's like, hop in as hot one year and then not so hot the next year. Like, I just, you know, you do read, like, it just seems weird to me, but I haven't been inside those cultures where people have done that. So, um, and then most people have a much more rigid hierarchical thing where the senior people take a cut, the junior people get less and you get something correlated to what you did.

[00:42:45] Hussein: Thank you. But it may not be fair, but it's not so unfair that you're not willing to quit your job over it. So you're annoyed, but not annoyed enough to make, like, big life changes, and then you just wait until the next year. Like, you know, it's [00:43:00] like, it's, these are, like, there aren't very clean ways, which is why I think we just said the easiest, cleanest.

[00:43:06] Hussein: It doesn't require very much explanation. We live and die as a team. We will divide the spoils and by the way, you asked me earlier, like, what about the back office? What do we do? Yeah. So we, we don't give the same amount as the people who are doing the deals we give up, you know, it's less, but we, we make sure that they're also cutting like from a principal perspective.

[00:43:28] Hussein: We care about this. Now there's some weird tax things. Like, I would love to give, like, even our assistants carry in the fund. Cause like, to me, it's a, it's a philosophical thing. Okay. But you get taxed, and there's a lot of paperwork that you have to do in Europe that you don't have to do in the U. S. We, we basically do something that's more like synthetic carry, which is like a really large bonus.

[00:43:50] Hussein: Which gets them to the same thing without having to go like the amount of like when I file my US tax return It's like literally like this much paper. Like it is really [00:44:00] really really hard as a return I don't know someone who's earning less than 100k as an assistant should have to go through like 5, 000 pounds of expenses just to file a tax return and whether we should just like synthetically come up with what that carry number would be and then just pay it out as like a one time bonus.

[00:44:18] Hussein: We are working through that. We didn't have PAs like two years ago. We did all of our own calendaring by ourselves and that doesn't sustain. So like, we now have to think about this, but we want everyone in the firm to be invested for the long term. If we like make money as a firm, like. You know, they deserve like the profits as well, right?

[00:44:36] Hussein: Like, because, because we wouldn't be able to do our jobs without them.

[00:44:40] Rahul: Yeah. And, when it comes to. doing this right, the, the, the chunk of it is what you already spoke about as in like bringing people in and thinking about how you, you're going to be leaving. So there are three things, right? like the firm has to identify people and, then [00:45:00] the, the, the people who are identified needs to believe in your case, you said that the two people want to grow with the, the firm.

[00:45:07] Rahul: And the third thing is that LPS has to trust your judgment on the new people. in the, to, to generate the same level of returns as you have. So these are the three things, right?

[00:45:19] Hussein: yep, exactly. And I think the L takes a while. Like, because they don't know, right? They're straining. Like, they, it takes like a cycle before people realize that.

[00:45:28] Rahul: yeah, and, ideally if somebody, like, when did you start thinking about it after, you know, starting the firm, like how many years after?

[00:45:40] Hussein: So when we set up the firm, it was, I describe it as a project and the challenge with projects is you don't even know if the project's going to work, like, and you also don't know if the project's going to serve. So even if it works, you don't know if the project's going to survive. And it took us like, I've been pretty public about this.

[00:45:56] Hussein: It took us 39 months to raise our first fund. [00:46:00] Like it was really like a labor of love and persistence to get this darn thing off the ground. We started to do well. We thought we were doing well. The rest of the world had no idea if we were doing well. And our second fund took 28 months to raise. So I would say like first fund and second fund were both like very much like projects.

[00:46:18] Hussein: The second fund was bigger than the first one. So it gave us a little bit of budget to then think about how to remove some of the back office load. And we hired a really good CLO who's both a lawyer and a finance guy, which is like a very strange combination. You don't normally see that, but you need someone like that in the firm to be able to, if you want to, if you want to hand over the keys and they can only do the law, but they can't do like math and accounting.

[00:46:41] Hussein: Like, you can't really hand over the keys. And if they're only an accountant, so much of our job is legal. You can't really that that doesn't work either. So, like, we found the great person to, like, run it. and that it came out of project. And we ended up into this boutique, right? Where it's viable, not dying anytime [00:47:00] soon, but it's a boutique, like, it doesn't really have the surplus cash to scale it up into something much bigger.

[00:47:07] Hussein: It can only really survive as a boutique. It's a, it's great if it's a, it's very artisanal, lets you do what you need to do. And then our third fund, which is double the size of our second fund, gave us the budget and now say, okay, we can stay as a boutique. And like, we can add one or two people and we can pay ourselves a lot more money as better as a result of doing this, or we can use the extra money that we have to invest and actually build something that's a bigger institution.

[00:47:32] Hussein: And we started talking to people about, like, hey, if we want to recruit you, we want you to join this kind of platform, which we think we've gotten off the ground. It's a good platform. Like, we're a known fund now that we're not unknown. Like, we can raise capital. Our returns are good. You know, it was very clear from the people that we're talking to leave the people that we resonated with.

[00:47:51] Hussein: It's like, oh, wow. Okay. You build something. It's like a real thing. But now it's like really take it to the next level. And so like now you [00:48:00] like the people that we're bringing in don't want us to be a boutique. They want us to be thinking about an institution. And we, that's the transition that we've kind of, that we've kind of made.

[00:48:10] Hussein: And so we have started to like, it's a slow process, right? Like we are nowhere near, we're like in the early inning still where this is going to go. But like, that's the mental frame. And so you're trying to, Recruit people in now to like fill out the pieces and you're slowly going to start to expand the firm into not just doing seed investing, but probably doing a little bit more than seed investing.

[00:48:35] Hussein: So, ultimately, you can be, it looks like much more like a multi stage, early stage firm than just a pure seed firm. Pure seed firm and boutique go hand in hand in many ways, right? But as you build something bigger, you want to be able to have more shots on goal. You probably end up starting to look at series A's over time.

[00:48:52] Hussein: Like again, we're not tomorrow, but like probably over time. And you know this, the firm starts becoming more of a firm and [00:49:00] takes its own personality, as opposed to the personality of the people who are there in the early days.

[00:49:06] Rahul: And one of the big challenges when you start doing this is like, what if people leave? Like, especially when you take a lot of time to find, identify and bring them in. So, yeah. Yeah. How do you prevent this?

[00:49:25] Hussein: don't, I mean I think you've got to get these hires Like, hiring in venture is very different than hiring in corporate. It's probably more like hiring in a startup, where every job is precious. And if you lose, like, key people early on, the whole thing has a danger of unraveling. And, you know, in a corporate, like you're, you know, GSK or Pfizer.

[00:49:47] Hussein: Like, you know, you bring in a VP. It doesn't work. It's like, you're Ozempic, right? You're Nova Nordisk, you know, it doesn't threaten your Ozempic franchise, right? Like, you know, the business is very sustainable, [00:50:00] irrespective of the people in many ways, you know, when you're a tiny company and you're like four people, five people, it's a startup, like every hire kind of counts.

[00:50:07] Hussein: I would say venture partnerships are more like the startup side, like every partner kind of counts, you know, It's no secret, like, we, we, we are losing one of our partners, like, we're basically, you know, we're separating and kind of going our own ways, You know, philosophically, we want to build something that looks much more like a platform and much more like an institution.

[00:50:31] Hussein: And I think Rob, the person who's leaving, very much wants to build what looks more like a boutique, and one of the philosophical differences is I don't know if he's actually going to end up doing it or not, because his new fund He's very focused on like tech bio, deep tech, like much more research, and there's a lot of reasons for why you do this, right?

[00:50:49] Hussein: There's a lot of innovation in the, in the UK specifically, and in Europe, that is world class science. And not yet turning into world class companies like [00:51:00] there's a scarcity of this like we produce a lot of great stuff. We don't necessarily turn them into businesses. So yeah. And so we are under capitalized from that.

[00:51:09] Hussein: Like, they're not enough people doing. We do that investing as well as Huxton. I think what he wanted to do at one point, he was talking about this was like, hire a scientist onto his team or like research associates. Who, you know, could help them figure out what the scientific merit of these projects were.

[00:51:27] Hussein: And all of a sudden, you then end up in a partnership where one person has like five staff and the other partners are not doing all the same kinds of science stuff that no staff. And, you know, you can't have an equal partnership. Where one person is very different and has a very different model than the other, like, either everyone is on one model or like, or, or, or not.

[00:51:50] Hussein: Right. So, so we agreed and like, we had a really good run. Like, you know, we've made lots of money together. We've had, we built a really good firm together. But he's going off [00:52:00] and building his own firm to do it in a very philosophically different way than what we're doing in many ways. It's like, it's very similar, right?

[00:52:08] Hussein: Because we think alike, like, we're trained the same way. Like, we think about the world very different. That's why we've been good investors together, because we're unified. But philosophically, the kind of firm that he wants to build, the kind of people that he wants to put around themselves. It's very different than the kinds of people that like like to have around.

[00:52:26] Hussein: They like, they're, they're philosophical differences. They're not like, they're not, they're, you know, it, and, you know, you end up making, you have to make, you can't run both in parallel, like, 'cause then you, you end up causing like a, a fracture within the firm. So you have to kind of make these hard choices.

[00:52:42] Hussein: And we made the hard choice, you know, and he made the hard choice of like, you know, basically going off, I'm, I'm an LP in his new thing. Like it's a very friendly. It's a good splitting up in many ways, but, you know, it is still a splitting up. Um, I think that one worries us less [00:53:00] than what happens if like one of these new folks that we just hired Brian, you know, from COSLA who joined us and he's like, he was seven years in insight, you know. If Brian leaves, like, I am investing heavily in this new guard, like, that will be much more of a shock to the system than this, like, gentle parting of ways with Rob, like, because that was like a philosophical thing in, like, almost slow motion, like, you know, after, like, 10 years of making money. Like, I don't want my new people who are like very invested in like building this institution, in many ways, the reason why we're going down the institutional route versus the boutique route to like walk away and like be frustrated that they're not being paid fairly or like there's better opportunities.

[00:53:42] Hussein: So like, I'm spending a lot of cycles with like people I'm talking to about like, do they buy it? Is this the kind of home that they really want to be in for the next like 10, 20, 30 years? Because I am taking a huge bet as a founder on them and I don't want them to like leave. And by the way, [00:54:00] like there's always this danger, right?

[00:54:01] Hussein: Like, you know, Luciana was like the heir apparent in many ways that Axel and then Sequoia recruited her. And it's not like she did a bad thing. Like if Sequoia calls you, like that's a call that you should take. Like there's some real reasons for why she, she switched. Thank you. You know, maybe Sequoia will call Brian.

[00:54:17] Hussein: I really hope that they don't, but you know, they may be like, it may not be perfect in this sense, but, but this is like, you know, a departure would be a bad thing for, for, for, for me or for the firm.

[00:54:30] Rahul: Yeah. But it's also a risky move for the person, right? Because, um, with oxygen, he's part of the. Uh, established firm. And when you're going out on your own, that's a risky move, right?

[00:54:45] Hussein: Yeah, yeah. So I think it is. So he was a partner at Coastal and, you know, he was in the middle of things in Silicon Valley, right? So there's two things, right? It's like picking up and coming across. You know, from Silicon [00:55:00] Valley, which, yeah, is no longer as much of the center of the world in tech, but it's still like a pretty important place in the middle.

[00:55:07] Hussein: Like, it's where the action is, and coming to London, he has a, he has an English wife, so that helps a little bit. Like, so there's some reasons for family reasons to be here, and then he talked to a lot of firms, like, and you know, the culture was like a huge thing. Like, when I first met Brian, they gave me a book called Willful Blindness.

[00:55:24] Hussein: And it was a book on, like, how do you build, like, radical transparency and open conversations that are very honest, even if they might be a little bit painful? How do you build a system inside of a firm to allow those conversations to flourish without people feeling bad? Because if you can do that, you build a really strong core inside of the firm.

[00:55:45] Hussein: You have a very good relationship inside the firm. It's like, you know, you find someone like it wasn't me asking about this stuff. This is him saying, like, I've been thinking about these kinds of things, you know, I've seen what works in other firms. He was an inside coach, so I've [00:56:00] seen what doesn't work like I am spending a lot of my energy on trying to find the firm.

[00:56:05] Hussein: That is very aligned with like how I want a firm to actually behave and kind of be. There was a lot of good like kind of buy in on that side. We got very, very lucky with that hire anyways. But we have to now do this like a couple of times. We did the same thing with Payton. And like Payton, 17 years at Google.

[00:56:24] Hussein: You know, he's had a great career. Like, you know, I remember one time, like, where we were all meeting as a firm and he was an advisor to us. And it was the day that Bart was launched and like, he was back and forth with Sunder. Like, you know, it wasn't like a junior guy, like, great opportunities to Google and we were able to convince them to like.

[00:56:42] Hussein: Look like you had a really good run in Google. You make a lot of money, but like you couldn't like they take very good care of you, then you can do that for the rest of your life, like, if you want to, or you can kind of go build this institution that is like much more fledgling institution and you know, your 40s can be about like, almost reinventing your career and doing something [00:57:00] new.

[00:57:00] Hussein: And we think you'd be a really good person around the table, you know, on the investing side, um, to kind of learn that even if you're not a natural investor, you haven't been doing that at Google. And so like, that was another really Good hire and again like spends a lot of time in many ways. I think they can like does a lot of the day to day running alongside of Rob or CLO versus me and I kind of want to push that right over to those two so I can like go back to like thinking a lot more about investing but I can't push the people side and the culture side nearly as much because that that has to come from me as the person who's been You Like, you know, who set the whole thing up and have to kind of get this thing into, into, into motion.

[00:57:38] Rahul: Yeah. And I know it's not a great thing for the firm for people to leave, but then for the industry in general, is it a good thing if people go out and start new funds? Because, you know, one thing, one data shows that, you know, the first two funds perform really well and then the performance drops.

[00:57:58] Hussein: So more [00:58:00] than that, it's like, if you get to fund four, it's a 20 percent chance of success that you will, like you will, so sorry, Frank said that a little bit more clearly. 80 percent of the funds that get started, never get to fund four. So by the time you're at fund four, you're in a one in five survivorship bias.

[00:58:18] Hussein: Like, most firms set up, they may or may not do well, but by the time they get to fund two, fund three, they have like internal fractures, they lose steam, people decide they want to go do other things, they never make it to fund four. So, I don't know how many of the fund fours then go on to be great, right?

[00:58:35] Hussein: That's the real question, that's actually a good question for me to go research. Like, You know, but we, we are now we're on, we're at fund three going into fund four. We'll do fund four, like in, in like in 2024. So like we're at that cusp. I would hope that we get fund four done, which would put us into like pretty rare company.

[00:58:51] Hussein: Because most, most firms don't do this. There are a lot of people who like leave their firms and kind of go, especially [00:59:00] today, where there are like lots of solo GPs and capital has been really inexpensive. It's been really easy to raise LP capital. And then the. The friction of setting up a fund, like when we set up, like you need a fund administrator, et cetera, like now there's like AngelList and Vauban and there's like, there's infrastructure to make it very easy to take away that, that, that stuff that like, you know, normally like you need to be in a fund to be able to do that.

[00:59:23] Hussein: Now you don't need to be in a fund, there's service providers who can do that stuff for you. So it's very easy to be a solo operator. I philosophically think you are a better investor. If you're around the table with other people, like I, and I would speak for myself, like I make mistakes. I don't see stuff.

[00:59:40] Hussein: Sometimes, like, I sometimes like miss perspective, both in a good way and a bad way. Like, I missed the forest for the trees because, like, I can't go up the level or I'm so buried in the in, like, oh, so at the up level that I missed the little data point that says maybe there's a structural weakness here.

[00:59:58] Hussein: And having that and [01:00:00] I'm pretty good about getting to the right answer. I'm not a bad investor, but having that debate and having people who can challenge you, I could not survive as a solo, like I think it would be really hard to do this job. And to do it entirely by yourself in a vacuum, like where you can't, you don't have other people to look at the lens and to help you come up to a better perspective.

[01:00:24] Hussein: I fall into the, it's much better than being a firm. Now, the problem with being in a firm is you often have to deal with things that you may not want to deal with. You have to share with other people, right? You have to share economics, you have to share a seat around the table. I would much rather share because I think it makes you a better investor.

[01:00:42] Hussein: And I, I think it's really hard, like you see some of these like solo GPs and they've been really good at precedence seed, but like, will they test, like, will they stand the test of time? We're like the next 50 billion companies come from like the solo operators or will they be coming out of the venture [01:01:00] funds that are traditionally like would do that?

[01:01:02] Hussein: They overwhelmingly feel to me more like the venture type things. Like the solo things are good, but I don't know if they build exceptional the same way the venture stuff does. And then the problem with the venture stuff is you have to get along with everybody. You know, you're inside of a, you're inside of a partnership, right?

[01:01:19] Hussein: With all partnerships, like you have to compromise. Like, you know, you do it in like personal life when you get married, like it doesn't always go your way, but like you're better together than you are by yourself. It's the same thing. It Four or five people to do that with versus one person to do that with, and you have to like really get along with each other.

[01:01:37] Hussein: Otherwise, like you can't survive the hard times, like when, when they're knocks and there are lots of knocks in this business. Yes,

[01:01:45] Hussein: of weeks ago, I recorded a podcast with a solo GP, on why solo GPs are winning. And I think the argument there is that they can move fast, right? Like there is no bureaucracy, there is no legacy portfolio companies, and then they can make [01:02:00] quickly make decisions. I would push back on that. They can move fast, but there is no reason why a good firm can't also move fast. So a solo GP can, like, it's their decision, right? But you should be able to convene your partners if it's like an emergency. And make it and get the deal done like we don't like losing whether you're a solo or you're in a team like we don't like losing like so like you can you that's a cultural thing and then this idea that you have no legacy or that's only true in like in year one.

[01:02:30] Hussein: And maybe you're three, but like you get to like year 10, like where I am. So I think the solo GP job is like a gazillion times harder because like you'd have all of the portfolio companies and no one with you. Like I think the solo GP naturally lends itself, but you naturally morph into something that looks more like a firm at some point, because it is, or you say I'm passive, I'm not going to do port seats.

[01:02:53] Hussein: Like I'm not going to be that involved because my job is to pick companies. I don't know for all of the companies. [01:03:00] That I know that turn out to be great. They're never that linear Like there is a job for someone to push back and I think a lot of the good venture folks We're good, not at building the companies, but we're good at being the sounding boards behind the founders and pushing back when it's like, again, it goes back to like, why I like working in a partnership, it's the same relationship with the entrepreneur and, and two plus two gets you more than four in those kinds of like very positive relationships.

[01:03:27] Hussein: Both people walk away with more energy than less energy. And the problem is most people do this job badly. People didn't zoom in on the bad and say it doesn't work but the truth is like if you do it well it works so much better and you have to then figure out how to build a system that works well because it's a power law business again right so like matter the average like you know it's like.

[01:03:51] Hussein: You want to build a strong marriage, right? Like you want to be like, you know, we know that there are like 50 percent of people who get divorced, but like as the average, you don't want to be at [01:04:00] the average. You want to be in the outlier and you want to make it like a really healthy, good place. And if you do that well, both people in the relationship benefit, like it's much more, it's much more impactful, much more positive, not just for one, but for both people.

[01:04:13] Hussein: Like you're, it's a better unit in that, but it's a hard unit to make work. So it goes back to this culture thing is how do you then design the firm to do that? And I wish there was like a cheat sheet, like, I wish there was like a podcast I could listen to. But like, you kind of feel like you have to talk to a lot of people and then invent it kind of yourself, like in many ways, right?

[01:04:33] Hussein: Because there isn't, there aren't people that are kind of teaching these kinds of things. It is.

[01:04:38] Rahul: Yeah, so, it's like marriage, it's hard. Yeah,

[01:04:44] Hussein: is.

[01:04:45] Rahul: yeah, yeah, thank you so much for doing this, this was great.

[01:04:49] Hussein: Yeah. And I'm trying to be like, as open as possible, because like, I don't think I have the answers on a lot of this stuff. So you know, these are things, but these are like active things that we are like. This is where, literally a [01:05:00] third of my, like, energy is, these kinds of things internally,like, and, we will see if we get it right, like, I think we've been a really good project going into boutique, and we will see in the next ten years if we go from boutique to institution, so, like, I think history is the only way to figure out if we're actually going to be any good at this.