Rex Woodbury: The Truth About "Tourist Founders" & Raising $100M | The Further, Faster Podcast

0:00 But, I think during these moments it's also very hard to separate tourist founders that are raising because it's the hot thing to do and it's easier almost than getting a job and I think these are really dangerous moments and and we had this in 2021, you know, just 5 years ago. And so, I do think you have to really understand what makes someone tick and, you know, when the going gets tough, are they still going to build this company?

0:21 >> >> This content is provided for informational purposes only >> >> and does not constitute legal, business, tax, or investment advice. It does not constitute an invitation or recommendation to purchase or subscribe for and should not be relied upon when making any investment decision in any Antler fund or any other investment instrument. >> Welcome back to the Further Faster podcast. I'm Jeff Becker, your host and general partner here in New York City. Today, we have an absolute banger in the studio. You know him from Digital Native, from Index Ventures, and of course from LinkedIn, Rex Woodbury and his debut fund, Daybreak Ventures.

1:01 Welcome to the show. >> Thanks for having me. >> Yeah, man, I'm excited to have you here because we met in person a couple times, but I know you better from obviously from Substack and from LinkedIn. You're a prolific writer. You did 4 years at Index and then you rolled out with an incredible debut fund focused with $33 million and sort of like the artisanal, you call it, like the craft of venture and the obsession of the founders.

1:25 I would love it if you would just share a little bit more about yourself and and that journey to becoming an emerging manager that's so well known. >> Yeah, I like to say that we're maybe a series A startup now. I don't know. We're just activating fund two. We're growing up a little bit in the world. I mean, we're still still early days. But, this year we're going from fund to firm and we're building the team. We just got an office down down the block here in Soho in New York.

1:48 But, I was at multi-stage firm before with Index and always was kind of writing and talking about stuff online and I've just been kind of a student of venture my whole life and am obsessed with technology and people and how startups grow and fund one was 33 million fund. We were growing up a little bit and showing what we can do and we was really me at the time. It was sort of a a one-man band.

2:11 we added my partner Jared recently. Fund two is a 75 million core fund and then 25 million for more of an opportunistic fund alongside it. So 100 million in new funds and this is this is a big year for us to kind of try to take it to the next level. >> That's awesome, man. Congratulations. >> Yeah. >> It is I think it's something like 18% of funds make it to a fund two or three and so that puts you in a minority which is incredible, but it's not surprising. You built this amazing distribution engine.

2:38 You've done some great deals like Nourish which we could talk about. but maybe tell me about the decision to start your own firm because it's obviously looks good from the outside, but it's hard on the inside. >> Yeah. I mean I kind of grew up in the industry reading Fred Wilson from Union Square Ventures or you know Kirsten Green stuff or Bill Gurley's blog. So it's sort of like exactly legends from a prior generation and many still active today, but I always kind of wanted to start my own fund. I probably thought it was going to be later in my career.

3:06 Then this thing called AI happened. You know, I felt vertically integrated enough that I had the network to source and I felt like good judgment to pick and was ready to go for it and I feel like there's never a good time to start a fund. It's always going to be hard and I remember talking to my old mentor at Index Marton who runs the New York office here and he sort of was like, "Yeah, it's kind of a tough time to start a fund, but it's a really good time to deploy it. You know, you've got this new talent unlock caused by a market you know, change." This was 2023 so kind of a tougher >> Yeah.

3:37 >> time, but you know, a lot of people were venturing out to try their hand at starting a company and AI was six months you know, a year post ChatGPT and there was never a good time and it's always going to be a labor of love to sort of get it going and you know, get the engine in motion, but figured if we could do it, it would be energizing and it's been the best thing I've ever done.

3:57 >> It's incredible, but for people that don't really know how funds work, I mean, you have to go on the road and and fundraise. You probably make very little money for that period of time, commit some of the fund yourself. >> Yeah. >> You had entered in the market like 22, 23 to start raising. That year we lost 74% of venture funds and managers. So, you kind of went in in like the depths into a really hard thing. How did you unlock the capital?

4:20 Was it a thesis? Was it the relationships? >> Yeah. I think a lot of blood, sweat, and tears. I just took a while. I mean, I think the best advice I got going into the fund was I think it was actually from another ex-index manager, Ophelia, who is in London and she runs this this fund called Blossom Capital and she was like, "You know, Rex, it is really just a sales funnel and that is it. It is, you know, top-of-funnel and some percent convert on the LP side and you can't get too discouraged. we are privileged in venture to sort of spend our time on the side of the table that is saying no more often and so, I think it was definitely a wake-up call when I was on the other side of the table and you are opening yourself up to vulnerability and, you know, you're pitching LPs and they're telling you why they don't think that it's a fit and, you know, you're reading between the lines and being like, "Okay, maybe you don't believe enough in me or I still have more to prove." And I think it took a lot to make that fuel where I said, "Okay, like, you know, you're right. I'm still young and I still have a, you know, young track record and a lot to prove. I'm going to use that as fuel to show you what I can do and then come back to you." But, it was certainly, you know, a tough, you know, blow to the ego a number of times and I think it builds character and I I actually think it builds a lot of empathy for the founder side now.

5:28 >> I was going to say, I feel like you you were in the shoes of the founder for a bit there just racking up the meetings. >> I mean, I think so many VCs, you know, you send so many pass notes and I mean, a lot of VCs don't send the pass notes, you know, and and don't close the loop and now I try to make sure I always do that. and I've always been pretty good at that, but I really I it it matters because, you know, when I don't hear from an LP, you're kind of waiting on it and you know what it's like on that other side of the equation. And then also I think it just helps humanize it in that it feels very transactional if you meet 12 companies in a week and you're in a say no to all 12 and you write a bunch of pass notes, but I try to be pretty thoughtful with specific feedback and reasons why and actually something constructive because you know, it's not just one of 12 things to that entrepreneur. It's truly their life and their, you know, their everyday. And so I certainly feel that empathy more from having been on this side of the table.

6:20 >> Yeah. No, it's awesome. I'm I'm sure the founders appreciate it and you maintain that relationship, you know, in case you did make a bad decision and it come back later. >> Yeah, and we've been wrong many times on that and hopefully yeah, we've had LPs come into fund two now who didn't come into fund one and I think, you know, if we do our job right, the funds will raise to themselves and get easier and easier and everything is downstream of just investing in great founders.

6:43 but it is a I had to learn a lot. It was a steep learning curve for how to actually raise a fund, manage a fund. I think a lot of people don't appreciate the amount of fund admin that goes with it and if you're a fund manager, you know, it's not really the same job as being a partner at an Indexer or a great multi-stage where a lot of that kind of behind-the-scenes stuff is taken care of for you. You do have a lot of time to think about the nitty-gritty of fund formation, entities, and fund administration, and all of the minutia.

7:12 And some people love it, some people hate it. >> So it's not for everyone. Yeah, for sure. And so when you went out, what was the thesis? Cuz you went out at a time when everyone was saying no to emerging managers and you wrapped up a great fund, announced it. It just seemed like from the outside looking in, it was just win after win. >> Yeah. Part of the thesis, I mean, we've always called it kind of a back-to-basics of venture. It was this understanding that venture was becoming a lot more like private equity and looking a lot more like asset management. And I actually started my career in growth investing. I worked at TPG before I was at Index. So I was sort of trained as a as a PE growth person, but I've always liked the early stage and took a lot of convincing to get my way, you know, into the early stage and now I'm even earlier than Index. We're really a first check fund. And I like that stage because it's sort of where the power law works and it's, you know, you can invest, you know, in a company at 20 million valuation and then it can actually be 100X, 200X, 300X, right?

8:05 Like that is a pretty magical, beautiful thing to see that kind of velocity and a company go from an idea in a founder's mind into actually something that is changing people's lives and making the world better and you know, kind of defining culture, what have you. And that is not necessarily true in a lot of types of venture today where you're underwriting a 3X or a 5X or those kinds of funds and that kind of thing is not as exciting to me. I've always liked when you squint and you see something that is non-obvious becoming huge and impactful.

8:35 And so I wanted to build a firm that was a back to basics of that, more artisanal, more craftsman like we like to use those words cuz it's less I think of it less finance and more being in the trenches of company building in the early days and it's much more of a people business the earlier you get like that. >> Yeah, I'm sure you saw this week Benchmark announces its fund, departure from >> Times are changing.

8:55 >> What do you make of that? What's your take? >> I feel like it was a little inevitable and they've clearly earned the right with Cerebrus and some of the other things they've done, but it kind of leaves USV as the last of the, you know, artisanal firms and Benchmark, USV, I mean they're all firms that we've modeled Daybreak after in many ways of, you know, discipline on the fund size, focus on the early stage, high conviction, you know, not spraying and praying, really kind of being in the trenches with the founders and I don't know. We'll see. I mean, there maybe everyone just gravitates more to multi-stage world. I think we will always stay small. I don't think Daybreak will ever be more than three to five partners and I think early stage seed investing will be our bread and butter forever. But we'll see. I mean, the the industry's changing and it depends how many companies go public and how much is still in the private markets.

9:46 >> Yeah, for sure. You mentioned squinting. >> Yeah. >> And trying to see something that others don't. Most of our audience is founders. I'd be curious for their kind of knowledge, what are you squinting and looking for? What are you obsessing over like you said for these founders? >> I think Index was good training for me because I came from TPG world which is much more around markets and business models and you know, understanding a P&L and I think all of that has been helpful with for certainly the fund management side of things and writing the fund model and managing that, but also just understanding, you know, there are only so many business models that going to are going to underpin billion dollar revenue businesses and the kind of growth velocity that you want to have for these breakouts.

10:27 But Index is really kind of much more about the founder. I think you know, I was talking to to one of my friends at TPG recently and she was like, "Oh, what kinds of management teams will you invest in with Daybreak?" And I was like, "Management teams? I haven't heard that term in a long time." Like it's all about the entrepreneur now and I think that speaks to it's different, right? It's not a professional management team. It's really just one person or two people and how they will this company into existence.

10:51 >> Yeah. >> And at the end of the day like we like to say we're thesis informed but founder first. It is we have a point of view of where the world's going, but it's really just about people. >> Yeah. >> And to answer your question, I mean, words we use are velocity, you know, chip on your shoulder, grit, tenacity, like you know, sometimes we say aura of inevitability internally. We say, "Does this person you're sitting across from just seem to have this kind of aura of inevitability where you're like, I'm going to bet the kids' college fund on this cuz I just know this person is going to make this work?"

11:19 >> Yeah. >> And those are the kind of people we like. >> I love that. I love that feeling when you get it too cuz it's so rare, but you're sitting across from someone and you just like I have to be in this business with this person. that's awesome, man. I you know, it's it's fun talking to you because there are I feel like there are many New York investors, but New York hasn't traditionally been like the epicenter of venture. We have a few great companies, but not nearly as many as our friends in the Bay.

11:44 >> Yeah. >> And then your thesis, you know, you talk a lot about getting outside of the Bay, talking about charging nurses and farmers and like can you just talk about maybe your choice to be in New York versus be in San Francisco and sort of what kinds of companies on top of what kinds of founders? >> Yeah. I mean, I think you can build a great fund and a great company from either place. I think that I am just more of a New York kind of person. I really feed on the energy of the city. I love the collision of humanity is how I've framed it. I grew up in Tucson, Arizona, very different from from New York or SF and you know, I didn't know what venture was till my mid-20s. but I just love that kind of feeling you get in New York and I actually think it's kind of nice to be outside of the San Francisco bubble from a venture and tech perspective. I think there's so much groupthink there. It's a great place to build a company. I was there for 5 years, but I also think, you know, it is an industry town for just tech and I think being here it kind of sparks creativity in new ways. You know, there are so many different industries.

12:42 I actually think for AI, where it's reinventing all of these big industries, New York's a great place to build businesses. you know, we have a lot of companies in legal AI, healthcare AI, you know, insurance, big New York industries that are being reinvented here in the city and I think there's actually an advantage to companies basing themselves here. >> Yeah, so interesting. I feel like in New York, you can get customers, you can get capital, you have like it's just an endless amount of advisors.

13:06 And for maybe the last decade of venture, a lot of startups were selling to other startups and now we're seeing startups go after insurance and go after some of these massive industries that were maybe slower or more regulated. I don't know, it's it just feels different. Like those customers are now buying, they're moving faster, maybe they're feeling the pressure, but are you seeing that in the portfolio? >> Yeah, absolutely. I mean, I think I think there is a difference between are you AI curious and you're buying because it feels like the thing to do and you know, you better work with the AI legal company if you're a law firm because it feels like you're staying on the cutting edge. And what's the engagement? What's the adoption? I think both are true.

13:41 It's just you have to parse between the two and I think that takes a lot of talking to potential customers and understanding the market dynamics. And we're also seeing this trend of AI native services now where we've had a couple companies selling software to, you know, the healthcare provider to the law firm, etc., etc. And actually the adoption is too slow or people aren't rational or that market for whatever reason is just going to be a challenging one to adopt technology and change at the pace needed. So then you actually just become the law firm or you become the healthcare provider and we've got a few companies in our space or in our portfolio rather that are doing that in in the legal space. We've got one doing it in the wealth advisory space. We have one that's an insurance brokerage and you know, I think those are really interesting too because when you think about the total addressable market, the TAM for that, it's actually a lot bigger than just selling to a law firm or to an insurance company, right? If you actually are the brokerage, if you are the the legal entity, the law firm, you employ the people, your TAM is almost infinite.

14:44 And so that's become very in vogue, you know, the past 6 months or 12 months especially with the SAS apocalypse, but I think that's something we've been seeing for the last couple of years. >> SAS apocalypse, I feel like sometimes people think it's going to like take over and do everything for us. You've been saying recently like the egg theory, like people want to crack the egg or the McKinsey post you wrote recently, McKinsey's still going to exist. It sounds like there's still a debate over whether SAS apocalypse is like the the agents take over and do it all or if the humans are still needed.

15:13 >> Yeah. >> What's your What's your hot take or is it evolving? >> I mean, I think it's like businesses have proprietary data and then they have proprietary workflows and I think both matter and I think both are good moats. I think about one of our companies which just recently announced its series A. It's a company called Sandstone. They do legal ops basically. So in-house legal AI workflows and you know, that is just it is such a thorny challenge that it is very difficult to have a cloud or you know, open AI to build for that.

15:44 Like there are so many different edge cases and workflows and tools and integrations and it is more complex than it seems and so I think if you really have the empathy of the user and you watch them work and you understand the legal operations, you can build tools and that are more defensible, that are more value additive than just the models the labs can do. Yeah. Now we'll see. I mean, it you know, the world's changing so fast and you have to bet on founders who can stay six months ahead of that and and see around corners.

16:15 but I'm very bullish on the application layer AI. >> I think you've been talking about a few times like obsessed or kind of sitting there and watching the workflows. I've been spending more time thinking about the relationship the founder has to the problem. >> Yeah. >> Like founder market fit to me used to imply that like someone worked in the industry for a long time and understood it. But I'm seeing a lot of people who are not qualified to be in an industry to have this really deep relationship either by being inside the law firm or being inside the insurance company and maybe they're just more AI native by nature because of their age or because of whatever it might be.

16:47 how do you think about that relationship to the problem versus like they've been in the industry forever? >> Yeah. >> Are you looking at people that are 10 20 years in their career or are you going after the the Stanford kid like some of the other firms? >> We have both I think is the answer. I think our youngest founder is maybe 20 or 20 one. Our oldest is 42 maybe. I mean, it's a pretty wide dispersion.

17:10 if I had to create a rule, maybe the consumery founders are a bit younger and the more kind of B2B founders going after trickier industries, regulated ones with real insights or maybe a slightly older. I would say our median founder is, you know, 28 to 30, you know, has cut their teeth through a few years in a really good product culture and this culture understands what great looks like, is not old enough that they've been indoctrinated into sort of big company thinking.

17:35 It's a challenge though. I mean, I think the same thing on the venture side where you see a lot of legendary VC firms have such scar tissue in a category or have pattern matches that actually end up hurting them, right? They might say, "Oh, you know, we've seen three dead bodies in, you know, this piece of health care. Like we're just not going to touch it." But the 25-year-old who has a little bit of naivete and maybe has a unique insight because they're more AI native or just grew up in a different environment has the insight that it's actually going to be different this time around and you know, there are tons of stories of, you know, storied firms, you know, missing great companies because they had backed something different and I think it's actually one way that VC is a young person's industry. It scares me about, you know, I'm in my 30s now. I'm getting a little older and I How do you, you know, stay fresh and young and I've been going to Stanford and Harvard and MIT quite a bit and I feel a little bit like that meme of like, "Hello there, fellow kids." you know? But and Jared and our team's a little younger and we'll probably hire some younger people as well. I think it's important to really understand what are the the insights that we might be missing because we've seen this >> show before and it hasn't gone as well.

18:46 >> Yeah, I mean, I think that, you know, Lovable is one of ours and when it took off and they're doing, you know, 996, I everyone started talking about backing like younger and younger and younger. And then, you know, I think in to your point on the regulated industries, this there is not an appreciation for some of these things. Like you're going to go buy a bank or you're going to go buy an insurance company. And so, I like that split you mentioned. I am curious I guess just to go a little bit deeper on this on this topic. Like that naivete or that like unbridled optimism >> Mhm.

19:15 >> I remember like Jensen, I think he did that interview where he's like, "What advice did you give someone?" He's like, "Don't do it." >> Yeah, yeah. >> Cuz you already know how hard it is. But some of these younger kids are you know, maybe even some of the older founders, like maybe they don't know how hard being a founder is and that's sort of a superpower. >> Yeah. >> But then you have the other opposing side of like the second-time founder.

19:33 >> Yeah. >> Like that gets a better valuation. So, I don't know, like do you give people credit for those kinds of things or is it really just about like digging into the business and understanding the problem and sort of being thesis-driven? >> Yeah. It was interesting raising fund one. I was definitely surprised by how much LPs prefer second-time founders. >> Yeah. >> At Index, I would say there are are many good first-time founders and second-time founders in the portfolio, but if I had to say as a rule, I would say most of the partners would prefer a first-time founder.

20:00 >> Okay. >> I think there is, you know, if you look at so many of the great companies from history, they were first-time founders and they brought fresh eyes and a new perspective and they were youngish and, you know, had that kind of energy and I think it's almost a little silly to write a blanket rule because there's also a big difference between a second-time founder whose first company, you know, IPO'd for multi- multiple billions and a second-time founder whose first company didn't work out.

20:24 But I think as a rule, I mean, I love a first-time founder. Like I think they do bring new perspective, fresh eyes and I'm not sure necessarily that we need to be backing, you know, every, you know, senior out of college or dropout from one of the top schools. Like for every Mercor or Cursor, you know, there are a lot of, you know, companies that haven't worked at that age. and that's why our median founder is more 27, 28 than 22.

20:48 >> Yeah. >> But I actually think first-time founders are great and I love them and I think, you know, you can feel it too when you have someone who's like, "Oh, I've learned a little bit about this industry or I've had this insight from my prior job and I've, you know, seen what great looks like, but I've always wanted to start something. This is my life's work and I'm committing my next, you know, three decades to it. But I think during these moments it's also very hard to separate tourist founders that are raising because it's the hot thing to do and it's easier almost than getting a job and I think these are really dangerous moments and and we had this in 2021, you know, just 5 years ago.

21:23 >> Yeah. >> and so I do think you have to really understand what makes someone tick and, you know, when the going gets tough, are they still going to build this company? >> Yeah, no, I love that. It's people like vibe coding things and thinking, oh, it's going to be easy from here on out. It's like, no, that that's just like the very, very tip of the iceberg. >> I mean We try to always get into founders' background, who are they, you know, did they grow what did they grow up with, you know, what kinds of world views do they have cuz I don't know, I mean, I think one litmus test is like if this person couldn't raise funding from a fancy firm, would they still build this business? I think a lot of the best founders would say, yeah, I mean, I'm just going to make it work no matter what and I'm going to cobble together angel checks or, you know, I have this vision that the world needs this product I'm building and, you know, this problem that I'm solving must be solved and those are the people where when the inevitable market downturn comes, they're still going to be, you know, fighting the good fight and willing this into existence and resilience, I think, is just one of the most important traits in founders.

22:22 >> Yeah, how do you uncover it? What are the secrets? >> I think it's I'm smiling because I was thinking of like >> Don't give up your edge. >> Maybe I'm like my friend George from who's the founder of Habia like said, I think on some some podcast that, you know, founders, you know, grew up with this trauma or this one or this one. He's kind of categorizing it. >> George is a total maniac. >> Yeah, I mean, he's it's >> I think when you have your algorithm tattooed on your bicep, you're like, okay, this guy's taking it seriously.

22:47 >> But he said something like that. There were three of I can't I'm going to butcher it. but yeah, I I don't know if it's that cookie-cutter, but I do think there are certain things that light a fire in people and make them tick and trying to understand why they are the way they are and what their story is and are they building something that they really care about or or is it just something that they think, you know, they can, you know, flip around and have a quick sale on and cuz that also matters. Like venture is not the right product for most founders. I mean, for us it does not move the needle if, you know, you sell for a hundred million or two hundred million. It can It can be really life-changing for the entrepreneur, but we're really in the business of the power law and multi-billion dollar outcomes. And so, our incentives are totally separate from the founders often. and so you want people who, you know, when they get the acquisition offer for, you know, a 20X on our, you know, price, they might say, "No, I'm going to keep building and try to go for the 100X or 200X." And so, just important to understand those incentives.

23:45 >> Yeah, it's like what what's going to keep that fire lit when like the ego is being pulled this way or the thing is getting hard over here. It's like what is that thing that is just like this is my life's work. >> Yeah. And now, I mean, during these market frothy moments, you see a lot of founder secondary and secondary to series A or even the seed in some cases and you know, I think it is totally fine for founders to take some money off the table and like be able to de-risk things or buy a house or things like that, but you know, I usually don't worry about it that much because I think the founders that we like to back and the best founders, even if they do get a little liquidity or take a little off, you know, they're not necessarily building it just for financial mercenary reasons.

24:24 They really are trying to to make a, you know, the dent on the universe framework or that kind of thing. >> No, I love it. It's I see it right now, too, but this idea that founders are getting more secondaries is I think it's actually really healthy for the market. I mean, you want them to take care of like the underlying stuff at home so they can stay focused on the business. And I don't know, like, you know, in past cycles, it just wasn't that easy or that kind of like I don't say it was frowned upon, but it just wasn't that easy to get a a healthy secondary and sort of like take care of the stuff, you know, oh, I I gave up this job five years ago and I still haven't paid myself. It's like, well, I want to just like squash that little voice in my head.

24:57 >> Yeah. I also think founders should pay themselves a good salary, decent salary, nothing crazy, but you know, some of our founders are a little masochistic on that and I'm like, I don't want you worried about, you know, paying rent and like eating. Like I want >> Yeah. >> you know, you to to be able to do this for a long time cuz this is not, you know, a sprint. I mean, you are kind of sprinting for the marathon, but like it really is about putting together the months, the weeks, the years of compounding.

25:23 >> Yeah. So, how what's the secret sauce on finding this out? Is it a Are you calling references? Are you like asking questions really personally? What is it that helps you understand like, yeah, this person is going to be resilient or they do have that fire? >> I think of it I think usually you can tell on the first 5 minutes. And then I think from there, a lot of it is confirmatory through references or spending more time with someone, but you know, I think it's small things. I mean, founder-market fit is such an overused term, but it does matter. You know, why this person for this business.

25:53 Sometimes I think of it is like intensity per minute or almost like calories per word word spoken. So, you know, in a 5-minute conversation, how much have I learned? How much mastery have you shown around this topic? You know, have you clearly gone deep and you can zoom in and then zoom out and clarity of thought is another buzzword, but I do think, you know, that matters too. I always like to ask, you know, what are you going to build in the next 6 months? What aren't you going to build in the next 6 months? You know, how does that cascade into what you're going to build in the next 5 years?

26:22 Another question I like to ask is if you could stream lights all down the the goal, like, you know, in 10 years, what is this business? And you know, just trying to understand what the big vision is, how people think. >> Interrogate them. >> Yeah, I mean, I actually do think like raw IQ, intellectual horsepower is a good heuristic for founder quality, too. Like how fast someone's brain moves. I think a lot of our best founders, I feel like I have to be ready for our check-ins cuz their brains are moving really fast. I'm just trying to keep up.

26:49 So, I think all of those things and I like the intensity and you know, you used the word velocity before. The cliche there is people often say that, you know, velocity is a function of both speed and direction. And so, you know, do they know which direction to build in and then are they moving fast? Cuz at the stage we're investing, it's usually pre-product market fit. >> Right. >> And so, if you are trying to bet between two different people and you're saying, this person, you know, is going to try 100 things a month to find product market fit. This person's going to try 10 things a month. Like, who do you think is going to find PMF first?

27:20 >> Right. >> It's the one with the velocity around experimentation. And so, that kind of like nimbleness or agility, I think matters a lot. >> No, I appreciate that. It's like the action creates information. I just I had a founder interview today, actually, and it was only 15 minutes, and we just didn't cover like anything. And I afterwards we did a debrief with the team and I was like, if this guy's conversation goes this way all the time, like nothing's going to get done.

27:41 >> Yeah. >> And I just sort of extrapolated out like this small thing, to your point, this storytelling density. Did I get a lot from this? Did I learn a lot? Do I understand their obsession? And it was just like 15 minutes evaporated. And I just, you know, so try to extrapolate those small moments into how's this going to compound when they run an organization? How are other people going to show up in meetings? Like, are any decisions going to get made? Are they going to iterate quickly?

28:02 >> Yeah. We tend internally to break things into like founder archetypes of, you know, there are certain patterns that come up again. We love missionaries who really are solving problems they've themselves gone through. You know, we love we have we say the word savant sometimes like, is this person truly world-class at one thing more than anyone else? and different terms like that are very helpful for us cuz it is almost like psychology in the early stage. It's like, yes, you need to understand market structures, you need to understand technology and business and timing matters a lot and all of those variables, but you know, good founders tend to pick good markets. If they picked the wrong market or product, they tend to pivot into the right one. I think some of our biggest misses have come from loving a founder but not loving the space they're building in, you then you don't do the investment and then 2 months later they pivot and figure it out and you know, some of our other best companies that we did do, you know, were totally different idea when we backed them and then they, you know, found the right idea over time. So I think it's just the people.

29:02 >> You got to have the people. >> Yeah. >> It's hard to do cuz you you're looking at it and you're like, "I don't like this idea, but I can't stop thinking about this person and how they're approaching it." So you'll do those investments. You'd rather take a bad idea and a good person. Or sorry, a good idea a good person and a bad idea. >> I Yes, although I would say I think stubbornness is not a great founder quality. I think it it can be to a point, but you want someone who has strong opinions weakly held where they're like, "No, this is like my hypothesis on why this is really compelling." and you know, you might disagree with them and be like, "I don't totally see it, but I believe in you."

29:34 And but you want to make sure that they understand that if they run this down and it turns out customers just like do not want this or the market structure is not what they thought, they're going to evolve the idea. I think some of the smartest founders that I've seen can also be the most stubborn and I think that's a tough combination because you pivot too late or you, you know, are too wedded to the principles of an idea over the reality of what that customer is telling you and >> Yeah.

30:03 >> I think that's those are sometimes the most painful ones to see cuz you know someone has the potential. but you don't win points in this job for being more principled or >> Right. >> you know, holier than thou on well, it should be customers should want this or they should want this. It's like, you know, you do have to be a little understanding of what the reality is. >> Yeah, I think there's like this emotional attachment sometimes to people that are building stuff. Like they build for too long and then it's their baby and they don't want to change it or they're too stubborn to realize the reality. And it's like, are they Can they detach? Can they Can they understand or be objective about something and and work through that systematically?

30:36 >> Yeah, and I think some of the regrets I have on you know, founders I've worked with, you know, over the past years. >> not? >> Absolutely not. I mean, I don't regret any of the founders, but I do think I could have guided them more to, you know, pivot faster or throw out an idea or things like that. I mean, I think it is my I think it is often the investor's job to pull the founder out from the weeds and push them to think more critically. And this isn't just around the idea of the company. It could be, you know, around a a hire they made or a co-founder dynamic or things like that. But, I think I think of the VC job less as telling the founder how to run the business. Like, I will never know.

31:15 You will probably never know as well as the founder how to run the company. And it's probably a an issue if we do. I think of it more as these like key moments of inflection or key decisions or being able to say, "This hire is not working or you actually need this person now or this dynamic needs attention." And I mean, it might be just be one, two, three moments a year that actually matter. >> Yeah. I try to tell the founders I'm going to give you my opinion, yeah, but it's your job to decide if I'm right or not because if if I'm right and you don't take my opinion, it's it's your fault, basically. And if if I'm wrong and you do take my opinion, it's still your fault. Like, you have to run the company. But, I'm going to speak up and if I see something from this pattern recognition or this experience across hundreds of companies, I feel like I'm like I'm supposed to tell you. But, you still have to make the call.

32:01 >> You're at the end of the day the decision maker. >> Totally. I mean, I think yeah, you never want You're in trouble, I think, if you are trying to run the business. I think founders good founders don't want that, right? It is too heavy-handed. I think that's where a lot of VC value destruction comes from. You know, Jared and I internally often talk about like, you know, are we pretty sure if this founder if Jared and Rex got hit by a bus today and woke up from a coma in 5 years, are we pretty sure this founder has built a multi-billion dollar company? Like, those are the founders we like.

32:32 That doesn't mean we're going to go disappear, but you know, our our then becomes can we lead to one good executive hire? Can we get a great engineer on your team? Can we give you an insight on the pricing or the business model or you know, small moments of inflection that you know, change their trajectory by a few degrees. and it's probably not going to be the difference between a billion dollar company and a zero, but it might be a small compounding decision that becomes the difference between a two and three or four.

32:58 >> Yeah. >> It's amazing. >> It's Yeah, it's interesting you say that cuz it's just like when you when you have these founders >> like you want the ones that are most self-reliant. You want the ones that are out there that basically don't need you, but at the same time I can cover a lot of surface area and things that are good for them like introducing them to co-founders or finding out, you know, what the right introduction is for the next investor.

33:17 >> Yeah. >> And I think it's important to do those things because that's that's part of the value creation. >> Yeah. >> And and you know, the right to be on the cap table. I'm sure your founders love working with you. What's the what's the superpower? What's the if I if I join your fund or I take the check from Rex, what am I what am I getting? >> I mean, I think we think about it as I would say a few things. I think one is hustle. Like I think we it matters more to us than probably bigger funds. I do think, you know, a million two three million from you know, a smaller fund that is a fund one or a fund two really does move the needle and we really need that to work and we need your company to work. So I think it just comes from we try to just constantly be having our founders top of mind and we text with them a lot. We voice note with them a lot. We try to make a lot of candidate intros, customer intros and you know, just be kind of kind of relentlessly thinking through what are different ways that we can inflect the business.

34:10 >> Yeah. >> >> I think Sapphire and Screendoor have talked a lot about, you know, trying to back emerging just because of that hustle and like they're here to make a name for themselves. Their networks are fresh, their legs are fresh. Like >> Yeah. >> you know, let's go out and these smaller funds with people that are in those first few vintages tend to outperform the rest of venture on a multiple basis. >> Yeah. >> Yeah, I mean, I think that's part of it.

34:31 I also think just like stage specialists do matter. I think you know, our job is be the best seed firm in the world and there is a certain playbook that comes with starting a company. Every company is different, but there are certain things you can do to find those first engineers or figure out, you know, how to price the first customer, all of these different things and you know, a founder is an N of 1, a portfolio of 1. We have a lot of companies. Our job is to say, "Hey, like you might think about this cuz we've seen this work well here or here's a you know, a concern around the corner that you're going to you know, want to be aware of." And by the way, it's the same way with RLP's, right? I always say to RLP's like the two things we want are you know, someone who understands what we're doing and why you know, a 75 million fund two is exciting and what our strategy is and we don't have to teach them necessarily all of that, but then other than that, they just help us see around corners because we're an N of 1 and they've got a portfolio.

35:29 >> Yeah. >> and it's the same with founders. I think it's like finding product market fit is an art and a science and it is challenging and there are small niche things that we know that I think can help. I mean, one example would be one of our health care companies was struggling with a lot of security reviews for enterprise customers recently and like we happen to know great vendor who could totally unblock them on that and like I think that only comes cuz we'd seen it work well at another company and we've built this now database that we call like the daybreak guide to zero to one company building and you know, I think that kind of thing and also finding ways to build community between founders who are at similar stages, which we are going to do a lot more of this year. I think those things matter a lot.

36:12 >> That last one is so important. You want to be the best people around the best people >> Yeah. >> cuz they did the the funnel just gets smaller and smaller and they need people around them that are going through the same things. >> Yeah. >> And if you are really a breakout company, there's just so few people to be around and actually be able to text and talk call and talk to you and be introduced to you and so you mean your portfolio is like screaming right now and that's awesome because you can connect those people in a room and they all have a mutual respect and admiration and can learn from each other.

36:35 >> Yeah, yeah. >> Yeah, super powerful. >> Yeah, we we started the Daybreak founders WhatsApp a couple years back and it's popping off and I think that's helpful for people to just ask questions that we might not have the answers to but someone else might have this niche, you know, response or you can just benchmark and say, "Hey, like how much are you guys paying for your office space or what did you offer this engineer in terms of equity?" And and then I think finding new ways to build that connectivity with >> Yeah.

37:00 >> this new office we got. We'll have a dining table in the back. We'll be do dinners and we'll do events and I think just really try to step it up and create create more of that connectivity in the ecosystem. >> That's awesome. You mentioned stage focus, but what about industry? I know there's some things that you're focused on. You mentioned healthcare a few times. What are the things that if people are watching are like >> Yeah.

37:19 >> Praxis is my kind >> Very broad. I always try to like not, you know, box ourselves into any industry niche. >> Cuz the bad ideas can become different ideas. >> I just think I think both founders don't always want a sector specialist, especially at the early stage. I think often our founders are smarter than us in that space and we usually have a good enough network to help them in some way, but I don't think that they want us to be saying, "Oh, you should, you know, back when we invested in this healthcare company 5 years ago, they did this." And you know, I think the best founders are saying, "We don't need that outdated playbook. Like we know what we're doing."

37:52 >> So you're you're responding to the smartest people you can find as opposed to putting thesis out there. >> We have a point of view of what spaces and markets are interesting. Like I think, you know, applied AI broadly application layer is probably where we spend most of the time. We're probably 70% B2B, 30% B2C. I love consumer. I think a lot of the best companies will be in consumer. I also think you have to balance consumer with some enterprise.

38:19 I love, you know, fintech. I love healthcare, I love, you know, vertical AI and more horizontal. it is really around like two things. One, do we think this person or persons are exceptional? >> Right. >> And then, do we think that if this works, it can be a billion-dollar revenue business? >> Mhm. >> and those are really the two and we try not to overthink it beyond that. The second one, of course, means does this market support that kind of outcome, you know, are the margin structures, things like that. But, it's really do we think it can get really big and do we think these are the people who can get it to that?

38:53 >> Yeah, if I get if I bust, it's going to happen no matter what. >> Yeah, I mean, I think the mistake is I don't think that emerging managers It depends on the fund size. 200 million exits, 300 million can return the fund and be really great for for a lot of funds, but we try to underwrite everything to a true, you know, power law outcome and we don't try to be overly price sensitive or say, "Oh, well, we're in at this right price, you know, if, you know, this becomes a 200 million exit, it'll be a good multiple."

39:19 Like, we really want everything to be potentially huge. And then, you know, if it doesn't work and it is a 200 million or 500 million exit, that's great, but we want it to be potentially multiple billions and >> Better is the bear case than the bull case. >> Yeah, and like we're we're disciplined on the fund model, but I I also think there's a balance of you know, adverse selection around price and >> Yeah. >> the power law is the power law and you want to be in the best companies and you would rather own a little less of a, you know, Stripe or, you know, Ramp or Anthropic than a ton of a company that's a lot smaller.

39:51 >> Yeah, for sure. Are you I mean, now we've been through two cycles together as emerging managers, how do you think about the price shifting now in this market in AI versus the price shifting that happened in 2020, 2021? >> Yeah. You know, obviously we have the benefit of hindsight on that, but you know, you mentioned maybe not being so price sensitive. Like, is that within a range? Like, is price entry price still matter? Does it matter for the founders?

40:14 >> It definitely matters and I I think of it more as, ownership than price. I think it's a sliding scale. I think you know, you want ownership where if you get fully diluted and you know, the company works, it can still at least one X hopefully your fund, hopefully multiples of that. And so that's the math we do. >> Yeah. >> but it means that, you know, if a company is raising at 10, you know, maybe you put in a million, you get 10%.

40:39 If something's raising at 30, you put in three and get 10%. Like I think of it more as what is our core ownership target and then is this a full position for us? for us it's sometimes pre-seed and sometimes seed. We want to have the flexibility to meet different rounds where they're at. >> Yeah. >> and that comes with being a slightly bigger fund. I think a true really early stage fund can go one of two ways. You could not care too much about price and you can just be in the companies that you think are great.

41:06 >> Right. >> Or you can be super disciplined lead, co-lead, do earlier stage. We've done both. and great founders come from both. I mean, in an ideal world, you're, you know, investing in the next multiple billion-dollar company at a really great price cuz you found it first and it was proprietary and not competitive, etc. >> Yeah. >> That isn't always the case. but I'm not super convinced that the seeds that are happening at 25, 30, 40, 50 are always that much better than the ones at 15, 20.

41:33 >> Yeah. >> I noticed and I maybe it's just I want to be right about this and it's not statistically true, but there are founders who are who know what they're doing and like basically try to take a reasonable price because they understand that there's another stage to go, optionality to be created, and it might dilute them a little bit more, but it's like it's very unemotional about or you know, lack of ego around the valuation.

41:54 >> Yeah. >> but it's a huge range in this market. I've seen people raising 12 to 120 with nothing and I've seen people raising, you know, at a, you know, 5, 10, 12, 15 just cuz like they just want to get started. They don't want to spend time raising. They're not really so concerned with the waterfall because it's like if it's huge, it's huge. Like let me just go build. What >> do you stand on the founders like approach to valuation and the round they're raising?

42:19 >> I mean, it's definitely talking my own book to say, "Well, all founders should be pretty disciplined and raise lower prices." I mean, I actually do think there are there is truth to that. I think being reasonable and doesn't mean you have to over dilute yourself, but you know, I think it's the classic companies die from indigestion, not just starvation. And unless you need 12 million out of the gate, I think it's better to raise maybe a few million then really crush it and then raise that extra capital on better terms because you have more leverage.

42:50 I also think that you know, if you're raising your first seed round and it's a really frothy market and you've got a hypie round and it's at 40 post or 50 post, you'd better be pretty sure that you can really knock it out of the park to raise the series A cuz the bar just went way up. And I also think, you know, if you're raising it from a a multi-stage firm, like, you know, you have to know the risks that come with that where if you're doing really well, it's probably not as risky because things are going to go great. If you're not, like it is going to invite awkward questions in the next round and they might not pick up the phone and it's going to be a little tricky and I do think the signaling risk does matter. I don't think it matters if your company's working, but every founder, you know, when they take that evaluation, they say, "Well, of course I'm going to be one of the ones where it's working." And that confidence is great, but there are a lot of times where, you know, it isn't and we're the ones I think that are, you know, trying to hustle a bit more and help the company and the multi-stage person, you know, isn't available or there's so much churn over at the bigger firms now, too, that it's a little bit de-risked, I think, to take capital from someone that's the founder of their firm or you know is going to be around because the GP or the partner who's the check writer in your deal might not be there in 2 years or 3 years.

44:04 >> Yeah. >> I struggle with the talking your own book thing because genuinely you want to help the founders. You want to tell them like that 40 cap it it only matters if you are a you know if 80 100 in the next one, but if you can't break through and have meaningful revenue and you do a 20 in the next round like >> you know, good luck making anything on the waterfall and and it does sound like it's self-serving when you tell them that, but it's really not and I struggle with the the founders like kind of believability of that cuz you're really looking out for them, you know.

44:32 >> mean we have been through cycles enough now to see it and this is definitely a moment in you know we're talking early summer 2026 where it does feel very overheated in the market. I think we could use a correction. It would not be that bad. I think the market could could use that a little bit. But if you're raising a really sort of of the times seed right now and the market corrects, I mean or multiples compress etc. I mean it it just might be tough for the next round and I think it's a calculated risk for people to make.

45:03 >> I also would love to know like who you're learning from, who you're reading, where you're kind of staying on top of AI. I think everyone's drinking from a fire hose, so maybe you can pick which one to go first. >> Oh man, I feel like I'm going to regret not having a better hot take. I mean the one that's top of mind now, I feel like everyone's talking about how the labs are just going to eat the whole application layer and I just think that could not be further from the truth.

45:25 You know, going back to the proprietary data, the proprietary workflows, I mean I just think there are so many last mile products to be solved that are really tricky and going back to what you were saying earlier on vibe coding, you know, I don't think what's the old adage now people are saying like my your average, you know, person's not going to vibe code their own CRM or HR software tool like I think that is very true. I think and this goes back to the egg theory a little bit of like people like constraints, they like friction, they like UIs that tell them what to do.

45:58 I think design matters more than ever and maybe that's another hot take that it's like hire designer really early and figure out the good workflows in product and and UI, but I just think that yeah, Anthropic is probably going to have an amazing IPO and Open AI as well and I think the labs are amazing, but I think there are so many other really big companies to be built. >> Well, it's interesting cuz I think the frontier labs, it says it in the name, like they are frontier. They're going to have to keep focusing on bigger and bigger markets to justify the valuations. And then you're going to have these new entrants or new foundational models that are much cheaper to operate on and application layer will run on that and be high margin, but I don't see a world where, you know, a company that needs to be three or four trillion dollars next year is going to go after something that feels, you know, fairly small relative to that market cap, which may still be a fund returner for us as a 10 or 20 billion-dollar company, but a tiny percentage of what they need to accomplish in terms of, I don't know, curing cancer or building data centers in space or something.

46:57 >> Yeah, I mean, I think you're alluding to also just like the outcomes are going to become a lot bigger, which is I think very exciting. I mean, I saw a chart last week of, you know, 10 years ago what the top I think, you know, five S&P companies were were worth and you add them up and I don't remember exactly what it was, but I'll tell you that you add them up now and it's a lot more, right? And, you know, I remember it feels like just yesterday I was reading about, you know, was Apple the first trillion-dollar company? It might have been. It was not that long ago and now I think we're not that far away from the first 10 trillion-dollar company and maybe it'll be Google, maybe it'll be Nvidia, maybe it'll be Anthropic. I mean, we'll see.

47:34 >> you being here. Where can we find you? Where can we follow you? >> Digitalnative.tech is is the website for Digital Native, daybreakventures.com for for Daybreak and @rex_woodbury on Twitter and, you know, those are the main places. >> That's awesome. Well, congratulations on an amazing debut fund one, launching fund two at 100 million. Honestly incredible. I know what it takes to to go out there and fundraise and it's done on a lot of hard work and a lot of amazing content. And I've had loved having you in the studio. Learned a lot today.

48:05 >> Yeah, appreciate >> I hope our viewers have, too. >> Yeah. >> So, appreciate you being here. >> Thanks for having me. >> Today we had Rex Woodbury and I hope you'll keep tuning in to hear from investors, from founders, people that are building great companies, people that have already built them, and learn all about what it takes to be an exceptional founder. >>