Shardul Shah
Appearances
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
The lessons to learn are don't be cute on price. Don't underestimate fantastic founders and don't overthink it. TAM is a trap. Go back and look at the S1s of some of the biggest public companies today. Their market caps are bigger than what they thought the TAM would be. The best founders find and expand market opportunities. We are in the business of finding fund returners.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Here's an example. I thought that the endpoint security market would be totally commoditized by platforms. I thought I use a Chromebook. I thought MacBooks have pretty good security. And as a consequence, the EDR market like which the first generation was McAfee, Symantec, et cetera, would cease to exist.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
At least $65 billion that explains I was wrong on CrowdStrike, Cyber Reason, Sentinel One, like this entire category.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
It was not a quick conclusion. Uh, It was the consequence of overthinking it, like rule number two, and not recognizing George Kurtz for the phenom that he is. Those are the lessons from CrowdStrike. Terrible mistake. Did you have the chance to invest? I mean, even if anyone had the opportunity to invest as a public company and still make a tremendous return.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
You know, there are business models that have real capital needs, right? they can encounter two challenges. Either the founders are unable to raise significant amounts of capital or their distribution model gets in the way of allowing there to be sufficient growth to overcome the capital needs.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
And so I overestimated like uncapped market upside, underestimated the capital intensity of a company, voted in favor with high conviction on the investment, And yeah, I think one of my partners is doing a great job of finding a path to returning capital on that investment, but that's certainly not a desired outcome.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
No. Unpack that for me. When we invested in Olivier and Alexei's Series A at Datadog, he was not a great fundraiser. Thank God he was not, right? If being a great fundraiser is defined as having multiple opportunities in a short span of time, He evolved into being a tremendous fundraiser over time, but I don't think the best founders begin as the best fundraisers.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I probably don't think about it as much as you. The luxury of having a seed venture and growth fund is we can build ownership over time with more capital if the company is performing. That being said, they're definitely business models like in biotech drug discovery. Those are hugely capital intensive, can have binary risk, binary scientific risk on if a
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
an actual, like a candidate becomes an asset. Those are business models that we won't participate in.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I'm not thinking about incrementally increasing my ownership. I'm building a net new investment case on can I create a fund returner? And with that, I do all the work again. So if I think about companies that I've been involved with, I've rotated shadow partners to help me with an objective view on reassessing the management team. I've redone customer calls. I've redone competitive analysis.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I've rebuilt financial models. I do all the work. Again, because I've doubled down multiple times within a year.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Yeah. I mean, the observation, when we started our first growth fund, Our hypothesis was probably three to five X over three to five years, right? I'd just come out of a private equity firm, as had some of my colleagues. And so we had that mentality. And when we looked at the performance of the fund, it turned out there's a power law. There were companies that were 5, 10x plus.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
There were very few companies that were actually 3 to 5x over 3 to 5 years. And so we kind of accepted the fact that we're not value investors. We're venture investors at growth stages. We're driven by high conviction. And as a consequence, when we're building our investment cases at growth, we never, it's like, it's super dangerous, I think, to say there's a safe 2x. There's no such thing.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
And you alluded to this with the memory of all the activity from 2021. There's no such thing as a safe 2x. And so what we're looking for is definitely 5x plus upside, even at growth investments at late stages at high prices.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I don't know why we're talking about averages. None of us are in the business of mean reversion. If we're making a Series B investment, it's by exception, like Elastic, Series B investment, terrific return, Confluent, Series B investment, terrific return, and the list goes on. So
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
No, it's not. I mean, we're mixing two time horizons, right? Like when you invest is not when you exit. So the multiples may evolve and change. It turns out the best companies get premium multiples, and again, are above the average multiples that you might be alluding to with multiples coming down. Second, the best companies that are category defining are going to be far more significant.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
And so you can afford to pay up. If you look at the averages, I hear you. But from my perspective, there's no reason to look at the averages.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
What's the hardest thing? It's kind of identifying if you're delusional or you have conviction. And sometimes it can feel like a thin line when you have such deep conviction. In what ways can you be delusional? You can be lazy. If you skip the details, if you don't do the work, if you stop asking questions and are surprised by new information, those are symptoms of being delusional.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
When you have a culture, like an index, we invite agreeable disagreements, right? And it can actually steal your conviction. When I have so much respect for Danny, who we talked about, for Jan, for Martin, for Adriana, Nina, Carlos, Vlad. When they disagree, you take it really seriously. You sleep on it. And when your conviction is unchanged... it's crystal clear that you need to go deeper.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
That said, with Wiz, when we were doubling down, we took multiple approaches to it. Top down, look, the cloud market is on a path to a trillion dollar transformation. There's probably $300 billion of spend on cloud service providers. That'll get accelerated by AI compute data demands, right? So we're talking about a trillion, potentially a trillion dollar plus market opportunity.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
In comparable categories, there's 5% to 10% attached to security spend. So the cloud security market could be really significant. If you think about most software, like functional software areas, the market leader commands north of 25% market share.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
So you do the math on how big could the winner be, and you can apply various discounts on penetration rates and time and so on and so forth, but you get to really significant numbers. Number two, you look at public comps, CrowdStrike, $50 billion plus business. Palo Alto Networks, I think now is like $100 billion plus business. Bottoms up, you know the business.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
In four years, the company has grown faster than any company of all time with unbelievable productivity in different segments, in different geographies. From a team perspective, they've gone from strength to strength, adding most recently Dolly as their COO, who's an absolute beast. And so from every dimension, the story is profound. But I don't think it's obvious, right?
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Did you get pushback with each round or not? Yes. On what? Price? Progression of company? On every dimension. Like we beat up investment themes, right? So... people, product, technology, competition, traction, market, like every dimension we debate.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Yeah, that's a really good question. You may have the advantage, if I understand correctly, your team's local, right? They're near you. All in person. The advantage of that is like conflict resolution is much easier. You can go for a walk. I really recommend walking meetings, by the way. I learned this from Steve Ward at the time.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
He was the chief security officer of Tia Cref, and then he became CISA of Home Depot. Steve, in a prior life, was Secret Service and protecting 42 Bill Clinton. So he's lots of great Bill and Hillary stories. That said, one time, Bill was in a meeting with, at the time, the first female Secretary of State, Madeleine Albright. And they were at it like loggerheads. They were at a disagreement.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
And Bill said, hey, Madeline, let's go for a walk. And she said, I'm old, my knees hurt, I don't want to do this. And Bill was like, if we're walking, at least we're headed in the same direction. So, I think when you have a disagreement or challenging conversation, walking, like movement plus heading in the same direction can actually help. be really stimulating.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
So it's actually a really good tool. That said, the fundamentals are, I think, trust, mutual respect, and mutual admiration. There's no shortcut. Trust takes time to build and it's easily fractured. So I think it's fair to be really sensitive to that if you value the culture of your organization to get to high quality decisions, which is what I think you imply in seeking truth.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
But it takes a lot of effort to nurture. It's especially hard in a venture firm in light of the power law, right? Again, very few companies are going to create returns, which means there's likely to be concentration among different investors, which suggests that you can have a skew of ego or insecurity, which can really fracture trust, respect, and admiration. So there's no shortcut.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
You really have to be conscientious about cultivating it.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
And what gets worse? Better perspective. I'll give you an example. Vlad, who just joined us, has an uncanny ability to read body language over Zoom. He'll literally Zoom in and look at people's facial movements to take a read on how they're reacting to questions and why. It's beautiful. I love having Vlad on Zoom, and it doesn't matter what part of the world I'm in. What are the disadvantages?
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
they're real ones, right? Like we are in New York, which is where I'm sitting is at the center of 10 time zones, right? There's a 10 hour time zone, which makes San Francisco and London logistically a little challenging to get together. So sometimes we have meetings that are really early in the morning for San Francisco.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
And if you're not am shifted, if you're not a morning person, you may not be at your best from a cognitive function standpoint, right? So I moved to New York, which is much more aligned with when I make high quality decisions. So I think trade-offs are logistical.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I really think that the sins of omission are much more significant than the sins of commission. The lessons to learn are don't be cute on price. Don't underestimate fantastic founders and don't overthink it. Those are far more valuable than thinking through how could we have improved on a selection of a company.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
There's so much long tail risk in a company that I feel like the exercise around pattern recognition, benchmarking as just like two examples is Risk mitigation is a third. Our exercises in psychological safety. We are in the business of finding fund returners. The power law dominates our business. Not being in a 10, 20, 50, $100 billion company is actually painful.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
No, I think what happens is in the seed market, most seed investors are are using signaling as part of an objection to work with a multistage fund. Most multistage funds say that signaling doesn't matter and the seed fund doesn't provide any value. So you should work with us. Our strategy is a little bit different.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
When I meet a founder at a seed stage, I'll tell him or her, I'll underwrite the entire round. So there's no financing risk, but we should split it into three sleeves. One sleeve is for index. One sleeve is for a seed fund. and the third sleeve is for angels operators because it takes a village. I don't have all of the answers to support a company at the get-go.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
They can really benefit from multiple perspectives. I have the opportunity if I deliver value and if the company performs, to increase my ownership over time. And so I give that optionality to founders, which I think is actually super different, but I think is far more critical in development of a company than thinking about signaling. So I love that.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I think the hardest sleeve to accommodate is actually the seed fund, right? Because different folks have different philosophies. I've come across a number of folks that I really respect who are pretty rigid on, I need to have this ownership because I'm going to get diluted. And so, we tend to have a lot more flexibility than seed funds. Angels Operators is probably the most flexible.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I definitely don't encourage founders to have a party round. It ends up being an exercise of herding cats. So tend to be very selective around a few functional leaders, for example, kind of like what you do with your fund strategy in order to support a company in different phases of its development.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Yeah, I think about different kind of flavors, like There might be a chunk for rainy day, like someone who you don't expect or anticipate to call frequently, but when you really need something, they'll be there for you. Second, distribution, product, engineering, like take expertise that you really need. Don't take money from customers, right? It's fraught with a conflict of interest.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
And then more to your original question, limit the number of people. I tend not to give advice on the size of the check.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Nice. I think the hardest competency to develop is winning. I think the sourcing competency is nuanced because we're rifle shooters. I'm not actually aiming to see every single opportunity on the planet. If I were, I would construct index in a completely different way, right? I'd have an army or maybe a huge data science team. That's not the goal.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
So I think about these competencies perhaps in a different way than others. But if I could wave a magic wand, I'd be great at all three. So why are you best and why are you worst, Shado? I'm probably the best at winning, where I spend the most time thinking about is how can I become better at supporting entrepreneurs?
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Well, I'm glad they said that. Good luck. You know, look, I think there's, of course, a merit to it. Like if you think about MailChimp, beautiful business, bootstrap, never raised a single dollar, phenomenal founder, great outcome. On the other hand, in very few strategic moments, I think having a valuable board is terrific. That board member may be an investor or could be an independent, right?
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
But I definitely believe boards are invaluable to businesses that want to dominate categories.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Do less. When I started as a board member, I was really excited about being a board member. There's this black box room. What happens? I want to be part of it. There's probably ego and power and influence, all of these ideas that pop into your mind. And then you want to help. And then you try to help everywhere. Right. There are very, very few things that matter.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
One approach I take, which I think can be a useful tool, is to hold up a mirror. Right. So recently we were in a board meeting. Entrepreneur is talking about in a closed session, an executive that he works with. And the board starts going around the table on like what to do when kick the can down the road. And I'm like, hey, I want to hold up a mirror.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I heard you say toxic, irreparable, inevitable. You know your decision. It should be made tomorrow. And we made the decision tomorrow. And I didn't actually contribute perspective. All I did was play back to the entrepreneur what he'd already said. And I think that can be really valuable in asserting high quality decisions, which is a key component of building an important business.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Thanks for having me back. Tell me, in all of the time you've spent interviewing so many people, what's the number one lesson you've learned? There's no right way to de-adventure.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Having the courage to say no to big opportunities requires deep relationships with maybe not every board member, but a few board members. And that's a place where, again, if you're positioned as like the first call, if you're getting calls from your founders on weekends, that's a really important role. Helping with decisions on
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hiring executives, not just firing, but hiring executives, where you may have seen a range of sales leaders, or in your case, like the best growth or the best of the best in product, you may be able to create a really nuanced perspective on the performance of an individual, and therefore inform your entrepreneur with perspective that can enable them to make key decisions.
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The power law dominates our business. Not being in a $10, $20, $50, $100 billion company is actually painful.
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So I think there are very few things that matter.
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Yeah, I mean, I'm really fortunate to be working with some of the best in our industry. So I'm absolutely impressed. Who is the best from your perspective outside of Index? Outside of Index, it's really case dependent. Gilly, Renan. Fantastic board member. Doug Leone, great board member in a very, very different way. Mike Spicer, tremendous board member. How is Doug good in a different way?
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Doug is incredibly intuitive. He can inspire confidence in a decision, which is really, really different. Grady is also like, I respect Grady. I respect Vishria. Where do you find VCs can be damaging in terms of boards? Yeah. Sometimes VCs put their interests ahead of entrepreneurs, which can be disruptive. And their interests are what? Varied, right?
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It could be finding a path to liquidity for themselves. In that path, they may not be clear-eyed on a capital allocation strategy. One of the key things a board should do is help inform the level and direction of capital investment. And if you're seeking near-term liquidity, you might be much more conservative in how much capital is being allocated. That's an example of misalignment. M&A.
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It might serve you to encourage a company to have a robust M&A strategy to buy capital fallen seed stage companies, which may be completely antithetical to the appropriate strategy for a business, which I have seen. And through a torpedo ad, investors can be disruptive.
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
I probably am more in the Charlie Munger school of like, the goal is to buy and hold and let other people help inform when to sell. And that's true for kind of the winners that make up the power law contributors, which is the business that we're in to find fund returners. For a non-fund returner, I think what are tools that you can use? If you come across an entrepreneur...
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who you believe is on the spectrum of unethical to incompetent, you should sell immediately.
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We're a large investor in a company. We invested early stage. Company got acquired for about a billion dollars by a public company. And within a week of receiving our proceeds, I asked our team to distribute the whole position. A couple of weeks later, price rocketed up. I got a few phone calls. A couple of months later, stock tanked and I got zero phone calls.
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So you're rarely congratulated for making the right call. You do get phone calls if temporarily it looks like you've made the wrong call. But you don't lose any sleep over it when you know you've made the right decision.
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It's a super tough one. We try not to be smarter than Mr. Market and like the invisible hand. That's real. There are people who are professionals at public market trading. That said, I do believe as a venture investor, you can have differentiation in terms of duration of hold. I do think you can have an advantage here.
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20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
in terms of understanding the business in more detail, and therefore you have more texture and nuance and context. But again, you've got to always be aware of that line between delusional and conviction. So often people kind of have rose tinted glasses because it's so rare to see a company go from point of investment to a public company that you believe it's going to continue and sustain.
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20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
And so we create some guardrails within index. It's not an individual's decision. We have a group of people that help, again, with agreeable disagreement to get to the best possible decision.
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Yeah, it took me a long time to figure that out. Growing up, I grew up outside of Chicago. And so my childhood hero was Michael Jordan. And all of the advertisements are, be like Mike. Like be yourself is actually the message in life and as an investor.
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I think you won't be surprised when we talk about Rolex, Swatch, and the Apple Watch. And so I think a little bit less about who are winners or losers. Generally, I believe in a competitive industry, not changing seems... It's not the strategy I would take. If the world around you is changing, adapting seems to make sense.
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But given the industry is so driven by the power law, I think people can withstand cycles longer than we probably give them credit for.
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Yeah, I think we noticed that when we opened up New York, right, 25% of series A's in New York are related to healthcare. That's a really different mix than San Francisco. And so we've redoubled an existing healthcare practice to make many more new healthcare investments. And so
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definitely like AI is a draft that's playing into tailwinds for existing markets, as well as enabling us to invest in new ones.
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Three elements that I would think about. One, like, have fun. Two, be yourself. And third, probably watch yourself. What do you mean watch yourself? Like, record and then play back. Notice your own tics, how you phrase things. Did you land the point that you wanted? What's the biggest lesson from opening up the New York office? I love Martin. Marty is Captain America.
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So principled, sets such a high bar. Although we've worked together for a decade, it's been an incredible experience.
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20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
Every week, there's minutiae of...
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decisions that we can make there's complete trust between us in terms of who makes what decision that's completely different and when you're working side by side with somebody in a new office where is the office going to be what's the seating chart going to be what's the color palette what's the art choices and you go on and on and we're completely indifferent to who makes what choices what's your worst trait that's also helped make you successful
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I have my fair share of analytical horsepower and that can lend itself to overthinking.
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20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style
It really irritates me when I hear investors say it's an exceptional founder, a plus founder. without any specificity or substantiation.
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Not firing fast enough. Biggest sin of the zero interest rate environment? The best founders probably didn't grow aggressively enough for investors. investors probably didn't maximize liquidity opportunities.
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No way. I think, you know, I learned this from Josh Mata, who's the founder of Coalition, sent me The annual reports from Stone Ridge, which is a hedge fund and everywhere, kind of a Warren Buffett style kind of annual report comes out. And in one of the reports, founder alluded to a culture of belonging and the spirit of belonging. is for people to be themselves and not to assimilate.
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If your goal is to be the best version of yourself and your firm's goal is to be the best firm on the planet, there's no room for assimilation and confirmation conforming to other norms. So I think it's absolutely wrong. I think if you try to assimilate to be someone who you're not, you're setting yourself up for failure.
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I don't know. What can I tell you? I've been with Index for 20 years. So I don't have actually a lot of experience with other venture cultures. At Index, there's this deep acknowledgement of the importance of mentorship and apprenticeship. That's how you evolve in your career. And I've been super lucky to have seven mentors in my career. Not once was I coached or not once did I play
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a game around doing X to climb up a corporate ladder. Like every time I was promoted, I was surprised. So maybe you're right. Like if you're in a institution, you know, of 200, 300 people, perhaps there's like machinery that you need to navigate. But in my home at Index, it's about finding fund returns.
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How did Danny shape you?
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I think if I had to distill it to the essence, it's intentionality. I've become much more intentional with my time. I've become much more intentional with my communication.
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When I started my career, every meeting default was an hour. Danny reminded me that I probably know the answer in 15 minutes. And so now the default first meeting I have is 30 minutes. That's huge time savings across the number of meetings I have.
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Every meeting, ideally, would have two people in it. So that's a super high bar for taking any meeting. I'm asking to prioritize someone else's time in addition to mine, which means the threshold for a meeting is super high. Now, in terms of handing off a meeting to someone else, I only do that if I believe one of my colleagues will have more chemistry or is more relevant.
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Like we were talking about vertical SaaS. Like if you're starting a vertical SaaS company, you ought to talk to Nina or Paris. They're geniuses. I don't know anything about vertical SaaS. We go for two people in a meeting.
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Little nuance. I'm a liberal arts graduate from University of Chicago. So I believe in concentrations, not majors. That being said, yeah, I kind of fell into cyber. One of the areas I actually started in at Index was biotech. So I think there's a lot of utility in each of the three competencies that you think about, like selection,
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you know, winning and supporting by having some amount of focus, especially for me, but similarly at index, I wouldn't recommend this to the vast majority of investors. Each of us is stage agnostic, right? We're investing at seed venture and growth stages. The vast majority of investors on the planet specialize by stage.
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Starting point is actually the same across stages, right? It's all about the founders. Like there's this canonical question, I think, in our industry. Is it the market or is it the team, right? And many great firms would argue that it's market. In my view, it's very clearly the team.
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And as a consequence, when you're trying to think about even paying high prices at late stage businesses, you're still fundamentally taking a view that that team will find adjacent market opportunities. Over time and so the in some sense the plasticity required to evaluate a team at stage is not a requirement How has what you love to see in founders changed over time?
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Oh, interesting. I'll try to think more about that. Look, I mean, if I step back, you know, in our industry, there's clearly a power law. Bill Gurley has talked about this at early stages. Lafont did a good job at East Meets West, bringing real attention to how seven companies are driving the returns in public market indexes. So the power law exists, I think, at every stage. That's a pattern.
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When it comes to patterns of selection and patterns within people, the only pattern is there is no pattern. Now, to your question of what has evolved, I think I've become much more conscious of two components of my decision making. One is intuition. And the second is an analytical framework. And venture is a craft, and so you're constantly refining it.
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And intuition, I have a harder time kind of putting to words. You know, it's a feeling. I know it when I see it. My partners definitely know it when they see it in me. But that intuition and conviction has definitely evolved and grown.
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At Index, I was once asked to run like a tech offsite. And so I kind of threw the old approach out of the window. And I told all my partners to do the homework. And I asked them each to write a postmortem on a company we could have created a billion of gain or more. And then we distilled kind of the lessons learned. And ultimately, the sins of omission are much greater than the sins of commission.
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The sins of omission for us distilled into three lessons. One, don't be cute on price. Two, don't overthink it. And three, Uh, don't pass on generational founders. And so intuition around, like, I'm so smart. Like one of the challenges with being a major concentrator in a domain is you get so smart that you actually think, you know, what you're, uh, what you're doing. Yeah.
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And then you might instinctually be dismissive of actually a disruptive idea.
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So intuition is one part of it. The other part of it for me is an analytical framework. In founders, I look for folks that have imagination, operational excellence and high quality decision making. And I find that like combination to be rare in one individual. Some of that may come out in kind of childhood trauma like that shapes who someone is and ultimately
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it's manifest in the types of decisions and the style of decisions that they make. But when I think about conviction in people at the earliest stages, I think you can be really elastic on price. Late stage, if you have conviction, price is just a representation of future expected free cash flow, right? So You're probably not wrong on price. You're wrong on the investment.
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Every investment in Datadog was at a high price. It's not an outcome yet. of course, but every investment in Wiz has been at a very high price. I feel great about each of those decisions.
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Which is like, often people say, listen, the best are priced high. Yeah, you know, Demir on my team once asked me this question. He's like, Shardul, how did you get comfortable with that price? And I was like, wrong question. I don't seek comfort. You have to be comfortable with being uncomfortable. We're in the business of taking risks. I'm not a value investor, right? I believe in the power law.
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I think very few investments and decisions we make will create disproportionate returns. So I'm not seeking average returns. I'm not seeking good deals. I'm looking for outliers.
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There's this scene. I see the hesitation. I'm the nerd here. There's this guy, General Akbar, who's alien. And at one point, he screams, it's a trap. That is the voice I hear in my head any time someone talks about TAM sizing. TAM is a trap. Go back and look at the S1s of some of the biggest public companies today. their market caps are bigger than what they thought the TAM would be.
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The best founders find and expand market opportunities. So I think at Index, we've been really good at overthinking TAM and systematically underestimating the magnitude of our best companies. So no, I never run into market sizing because I don't put effort into it. In terms of market dynamics, I get that wrong all the time.