Transcript – #120 Foundation Capital: Reinventing a 27 Year Old Venture Capital Firm | Steve Vassallo, General Partner

Please enjoy this transcript of my conversation with Steve Vassallo, General Partner at Foundation Capital. We cover Minimum Awesome Product, the prepared mind vs. open mind, and learnings from tearing down and rebuilding an investment firm.
Last updated
August 17, 2022
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Foundation Capital was founded in 1995 and has over $6B assets under management, 31 IPOs, and 80+ acquisitions.
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Please enjoy this transcript of my conversation with Steve Vassallo, General Partner at Foundation Capital. We cover Minimum Awesome Product, the prepared mind vs. open mind, and learnings from tearing down and rebuilding an investment firm.  Transcripts for other episodes can be found here

“The best product matters, but it is not what defines a generationally important company.” – Steve Vassallo

Steve Vassallo is General Partner at Foundation Capital and author of "The Way to Design." In this episode, we explore what it's like to reinvent a venture capital firm. Foundation Capital was founded in 1995, 27 years ago by Bill Elmore, Catherine Gold, and Jim Anderson. One of the foundation's early claims to fame was that it was one of the first investors in Netflix back in the early 2000s. If you've read "The Power Law," which is an incredible historical overview of venture capital by Sebastian Mallaby, you'll know that Silicon Valley is littered with venture capital firms whose fates have risen and fallen over the years. Very few venture firms survive a single decade, let alone multiple decades.

And those that do survive for decades have to reinvent themselves time and time again, which is exactly why I wanted to interview Steve Vassallo. Over the last 15 years, he's helped reinvent Foundation Capital, turning around lagging performance, investing in entirely new types of businesses and companies. And in the process, he's helped usher in an incredible new era at Foundation Capital. 

This episode is our definitive guide to reinventing a venture capital firm. In it, we cover Steve's early years bringing design, product, and engineering together at IDEO, and what that taught him about building successful products and companies, the early warning signs he saw that made it clear Foundation Capital needed to be reinvented, how Foundation rediscovered who they were and who they wanted to be as a team, how they changed the way they operated and made investment decisions to giving partners more latitude to invest in the ideas they thought could be massive companies in the years to come, how they began making crypto investments, which led to massive wins in Solana and Brave by making small bets and winning over LP support as the wins added up.

And Steve shares how he makes investment decisions, why he thinks you have to balance a prepared mind with an open mind, and he shares his advice for anyone interested in becoming a venture capitalist.

Transcript – #120 Foundation Capital: Reinventing a 27 Year Old Venture Capital Firm | Steve Vassallo, General Partner

Daniel Scrivner (00:00:06):

Hello, and welcome to another episode of our Outlier Investors series, where we dig into the ideas, frameworks, and strategies used by world renowned investors across public and private markets. I'm Daniel Scrivener. And on the show today, I'm joined by Steve Vassallo, General Partner at Foundation Capital, and author of, "The Way to Design." In this episode, we explore what it's like to reinvent a venture capital firm. Foundation Capital was founded in 1995, 27 years ago by Bill Elmore, Catherine Gold, and Jim Anderson. One of the foundation's early claims fame was that it was one of the first investors in Netflix back in the early 2000s. If you've read "The Power Law," which is an incredible historical overview of venture capital by Sebastian Mallaby, you'll know that Silicon Valley is littered with venture capital firms whose fates have risen and fallen over the years. Very few venture firms survive a single decade, let alone multiple decades.

Daniel Scrivner (00:00:58):

And those that do survive for decades have to reinvent themselves time and time again, which is exactly why I wanted to interview Steve Vassallo. Over the last 15 years, he's helped reinvent Foundation Capital, turning around lagging performance, investing in entirely new types of businesses and companies. And in the process, he's helped usher in an incredible new era at Foundation Capital. This episode is our definitive guide to reinventing a venture capital firm. In it, we cover Steve's early years bringing design, product, and engineering together at IDEO, and what that taught him about building successful products and companies, the early warning signs he saw that made it clear Foundation Capital needed to be reinvented, how Foundation rediscovered who they were and who they wanted to be as a team, how they changed the way they operated and made investment decisions to giving partners more latitude to invest in the ideas they thought could be massive companies in the years to come, how they began making crypto investments, which led to massive wins in Solana and Brave by making small bets and winning over LP support as the wins added up.

Daniel Scrivner (00:02:00):

And Steve shares how he makes investment decisions, why he thinks you have to balance a prepared mind with an open mind, and he shares his advice for anyone interested in becoming a venture capitalist. This is an incredible episode. You can find the show notes and text transcript at, that's 120, and you can learn more about Foundation Capital at, or by following @foundationcap on Twitter. Please enjoy my conversation with Steve Vassallo of Foundation Capital.

Daniel Scrivner (00:02:31):

Steve Vassallo, welcome Outlier Academy. This has been a long time coming, and I'm so thrilled to have you on, so thanks for joining me.

Steve Vassallo (00:02:37):

Thanks for having me, Daniel. Great to be here.

Daniel Scrivner (00:02:39):

We've known each other quite a while. I've been super fortunate to have you as someone I can learn from, as an investor, as a builder. So, I want to start by just sharing your background with everyone listening. And I thought an interesting place to start... Part of this conversation's going to be transitioning from being a builder to a venture investor, so to start, can you just share a sketch of your background in your early years at IDEO, and some of where your love of design and product comes from?

Steve Vassallo (00:03:06):

Yeah, you bet. The quick bounce on me and my background. So, I grew up just outside of Boston. I was what 9th kid out 10 in a big family, Irish Catholic, no TV. Went to undergrad back east, spent a year in Switzerland, and then came to California to get my master's degree in electromechanical engineering. And I thought I was going to be a university prof just like my Mom, and then my very first Friday at Stanford, I met David Kelly, a founder of IDEO. And I think I sort of assumed, up to that point, that products just fell out of the sky or something, that there was no sort of like degree in product design, that I knew of anyway. And so when I discovered this, I was just completely taken.

Steve Vassallo (00:03:49):

And a couple months later, David actually, after seeing my final project for this ME 101 class, which is sort the design division capstone course, or I should say introductory course, told me, he's like, "Well, you need to work at IDEO this summer." And so I then spent that summer, and then the next five years really, designing a whole bunch of things, products across lots of different sectors, everything from hard products to software interfaces, a whole bunch of things, furniture, Nike's first sunglasses, Cisco's first voiceover IP phones, anesthesia delivery devices, McDonald's bun toasters.

Steve Vassallo (00:04:30):

I mean, it was everything. And I was really imprinted, like a baby duck, on how you go from a concept to a product that, in many ways, could be category defining. So, that was, for me, a seminal experience. After that, then went on to about four years at my first startup, which was in the field of haptics, or forced feedback interfaces for consumer devices. And then went back to Stanford and did a bunch of things afterwards. But no, IDEO was just one of those just really extraordinary kind of bubbling cauldron of creativity places that I still look back on with incredibly fond memories.

Daniel Scrivner (00:05:10):

Yeah. You touched on it very briefly at the beginning, growing up in an Irish Catholic house with no TV. Did that shape your interest in technology or how you think about technology? Does that influence you at all?

Steve Vassallo (00:05:22):

Yeah, I was a thinker and a builder, and the kid who was always taking apart things, putting them back together, sometimes kind of in ways that were not always as they were intended. And really into Legos, kind of started my own business, which was my Steve's Snow blowing business when I was still in middle school, making my own print shop business cards for that. And so, I think there was a scrappiness about my family. I mean, we were very much middle class. And my Mom was University Professor, My dad was a physician. And yeah, I loved to build. I loved to take things apart and put them back together and reconfigure them in ways that were sort of, for me, a chance to kind of riff and kind of explore my creativity.

Daniel Scrivner (00:06:13):

Yeah. And I want to ask as well too, I mean, you talked about going to Stanford and studying, I think it was electrical engineering, at the beginning, or mechanical engineering-

Steve Vassallo (00:06:20):

Yeah. Electromechanical.

Daniel Scrivner (00:06:20):

... and transitioning.

Steve Vassallo (00:06:22):

Yep. Yep.

Daniel Scrivner (00:06:22):

Electromechanical, and then transitioning obviously to IDEO, where you're working on full spectrum product. So, there is some engineering portion to that. There's a lot of finding the right problem that you're solving, exploring the right solution, and then designing and bringing that to life. One of the questions I want to ask is, for a lot of people, they have this kind of false sense that engineering and design are two distinct, separate categories and there's no correlation, there's no skills that overlap. Obviously, I don't think that's true. I'm guessing you don't. What's your take on that, in how engineering and design influence each other?

Steve Vassallo (00:06:55):

It's a great point. And in fact, I was trained, as you said, sort of as an electromechanical engineer and a roboticist, actually. And when I came to Stanford, I was studying engineering, not product design. There was a product design major, and there was also a master's program. And when I got to IDEO, I was an engineer. I was not one of the designers. Our designers were typically doing industrial design, and then we added human factors and interaction design. In fact, the term and the concept of interaction design was pioneered by Bill Moggridge, who was at IDEO at the time, and who I worked very closely with. And there was this sense that you were either an engineer, or a designer, or a anthropologist, or an ethnographer, or a human factors person.

Steve Vassallo (00:07:37):

But what was so cool about IDEO, and this sort of became a term of art for a while, this concept of these T-shaped people, where you had this depth in one domain. That was the vertical part of the T, but then you had this horizontal respect and admiration for these other disciplines. And so, you could put a bunch of T-shaped people together who had depths in different areas, and then you would make these kist incredibly gifted teams that could think and cross-pollinate to other areas. And so, as I think about myself as a product designer, I don't think that I was strictly an engineer, or strictly a person who was thinking about human interface or interaction design. I sort of brought all that together. And I think in many ways, that's still how I see the world.

Steve Vassallo (00:08:24):

I think the most interesting products and services are really usually living at the intersections between disciplines at the seams. And it's the individuals who can take an idea for one area and bring it over to another that really unlocks some new user interface, or some new approach, or a metaphor to how you use the product. And I see this over and over again. We saw this at IDEO. I've seen this in my venture career. Some of my most interesting companies are ones that really are a combination of synthetic biology and large data, or semiconductors and systems with compiler theory. And even our crypto investments, I sort of feel like, are at the intersection of enterprise infrastructure and next generation applications. So, I really do believe in this concept of great products living in that space in between, or at the intersection of multiple disciplines.

Daniel Scrivner (00:09:19):

Yeah. It also speaks... Hearing you say that, hearing you talk about IDEO, it makes me think about interdisciplinary innovation. And one of the models that makes me think of the Santa Fe Institute, which has pioneered this idea that, if we want to discover new things, rather than all explore our own little vertical T bars, we need to actually work together across disciplines to find new things. And obviously it's not surprising that same equation works really well when you're company-building. You're trying to solve a novel problem.

Steve Vassallo (00:09:46):

That's exactly right. You got to bring a lot to piece together. I mean, I write a column for Forbes, and every 3rd or 4th post, I profile these individuals that I call the, "Missionary Misfits." And so, these are folks who are oftentimes trained in one area, but then they see an opportunity in an adjacent space, or maybe in an altogether different space, and they bring their depth into these other areas, and again, are oftentimes unlocking innovations and ideas because of that misfit nature. They're not trying to just mine one vertical seam of knowledge. Instead, weaving them together in really interesting and novel ways.

Daniel Scrivner (00:10:24):

Yeah. That's fascinating. I'm going to have to put a pin in that and come back to it. So, I want to now talk about your move from being a builder, or a product builder, or a company builder, to venture investor. Because I think for a lot of people, anytime I interview someone, I mean, obviously investors aren't typically born, they just want to do investing. The best venture investors come as company builders first, and then they end up discovering investing and use investing, along with their building skills, to, I think, one, find really interesting opportunities, and then two, to be able to work with founders to really bring those to life. So, one of the questions I want to ask was just, what was your journey of becoming a venture investor? Was that something that was always in the back of your mind? Was it more serendipitous along your journey? How did that come about, and what was the origin story there?

Steve Vassallo (00:11:10):

Yeah, so I never thought I would be an investor. It wasn't something I sought out. I did seek out building things. And for me, there were these concentric circles. I started my career building products, then building teams that built products. And to me, it felt like there was an obvious next step to build companies that build great teams, that build great products. And so that fractalization, if you will, of building, of creation and the creative process was natural to me. And so, after my stint at this haptics company, I was maybe 10 years out designing products at this time. And I was like, "You know what? I need a break. And I want to step back and understand some of the pieces of the products that I had worked on at IDEO that made them successful, and some of the things that I observed out in the world that were great products, but were not successful as businesses."

Steve Vassallo (00:12:03):

And so I had, literally, this venn diagram. In fact, I joked with David Kelly years later that I had the D school venn diagram before the D school did, but this intersection of technology, of human centered design, and business. And so I actually went back to Stanford, really, as a sabbatical to get, if you will, as excited about business and business models as I was about designing products. And so when I was at Stanford, I was riffing on 100 different ideas across everything from mobility to clean energy and sustainability. And just as I was leaving business school, I was actually introduced to Mark Andreessen as a prospective angel investor for a project I was working on. This was now, five and a half or so years before he started Andreessen Horowitz.

Steve Vassallo (00:12:51):

And so, he and I went to breakfast at the Palo Alto Creamery. And instead of me getting Mark's $100,000 angel check, he got me as the first head of product and engineer at the company that went on to become Ning. So, I did that for about two, two and a half years. And then I decided I want to start my own thing. I was like, okay, my first startup I was, I don't know, the 35th employee. And then at Ning, I was basically the first non-founder. And at this point I was like, "Hey, I think I can do this. I think I can go start my own thing." And so I joined, actually, Foundation. I was invited to join as an Entrepreneur-In-Residence. It had a very active program. In fact, Foundation invented this concept back in the late 90s.

Steve Vassallo (00:13:32):

And so, I was cooking away on my own idea, and in fact, bringing my product mindset to venture creation. And after a few months, they basically were like, "Hey, you keep bringing these cool ideas and people in. Why don't you think about joining as an investor?" And I was like, "Nah, I don't really want to do that yet. I'm still interested in building." And then another few months went by, and I realized I was having more fun than I had ever had. So, it kind of snuck up on me.

Steve Vassallo (00:13:59):

I mean, I still love designing products. I love the creative process. And so it was not an obvious thing for me to become an investor. But then I think, as I began to work with founders... My very first investment was in a company called Sunrun, solar finance company. And as I began to work with that team and help them go from quite literally kind of zero to now public company, the largest independent owner and operator solar systems. That was 11 years on the board. I joined it when there wasn't even a board. It was four people and a really interesting idea. And that process of helping them, and then being able to do that again and again and again with a whole bunch of other companies was, for me, just absolutely breathtaking. And so I didn't expect it, but it really has been... It has been just kind of a fun of a lifetime.

Daniel Scrivner (00:14:51):

Yeah. It sounds serendipitous in many ways. Obviously, makes total sense, but also, a ton of serendipity to becoming an EIR, and then switching over to a partner. One of the questions I want to ask is, there are many different types of investors. There are definitely investors that just write checks. There are investors that are incredibly hands on. I know that you are more of the latter. And so I thought it would be interesting to kind of talk about, or maybe help give us some examples of how you work with companies. And so I don't know if that's Sunrun, or if there's another example. But it's not just writing a check. It's much more getting to know the team, and then it's finding many, many ways to help them. And part of why I want to ask is, I mean, I very similarly started out my career as a designer.

Daniel Scrivner (00:15:33):

I now spend a lot of time doing investing. And I find it thrilling, because one, I get to help a number of teams, as opposed to just being focused on one problem, and I also get to learn an incredible amount from the people that I'm working with. And so it's this wonderful two way street. How do you think about the building role of being an investor and what do you get out of that?

Steve Vassallo (00:15:54):

Yeah. So, this is how I think you and I met, was that sort of intersection of sort of our kind of the optimistic sort of kind of infinite possibilities of building things. And I think building and creation is a fundamentally optimistic endeavor, of going from what is to what ought to be. And that, to me, is the funnest part of working with these founders. And I think maybe the best example of that of recent would be the work that I did with Andrew Feldman and his co-founders at a company called Cerebras. Cerebras is a semi-conductor and systems company that really pioneered some interesting technology to build basically purpose-built systems for AI workloads.

Steve Vassallo (00:16:37):

So, back in kind of 2015 timeframe, I and one of my partners had been really studying what was going on with big data and the use of machine learning models, not just at some of the sort of massive webscale companies like Google and Amazon and Facebook, but we were beginning to see, in the mid-market our, our own portfolio companies, some of our ad tech companies, even e-commerce companies, beginning to use machine learning to build better products, to build algorithms that were going to be much, much better than kind of their kind of hard coded, if you will, sort of more software driven rather than data driven alternatives. And so, worked very closely with that team. In fact, I had met Andrew when he was raising money for his prior company.

Steve Vassallo (00:17:25):

Loved him, but didn't love that idea and stayed close to it, and did what I often do when founders come across my radar where we don't converge, but I knew as soon as that company was done or he was going to be done with it, that I would want to back his next thing, or at least be in kind of the running to do that. And so his company, that last company, was acquired by AMD. I talked with him around the time it was getting acquired, kind of did set the proverbial egg timer for two years, knowing that he would pop out at some point. And then over that two year period, kind of riffed on half a dozen different ideas until he converged on building this sort of purpose built systems for AI workloads. And then even in that two years, those AI workloads were on a just full on vertical growth trajectory. In fact, I mean, the AI workloads were basically outs stripping Moore's law by a factor of 25,000x. Right?

Steve Vassallo (00:18:18):

So anyway, so he kind of got involved in this. And so what was my role in that? Well, we riffed on a lot of ideas. We actually hosted him at our office in Menlo Park. We have helped hire. I have personally probably helped close to 200 of his candidates, of his... These are the sort of the super hard to find, really, really special, deep learning experts coming from all over the world. I think we now have more than 36 countries represented on the team across four different geographies. And so just working really closely with him, and also when stuff got really hard. I mean, there were moments when we weren't sure that the thing was going to work.

Steve Vassallo (00:18:59):

And so really kind of working with him and rolling up your sleeves, engaging him in some of those hard problems where I might, in my network, be able to bring to bear some unique resources. And this was definitely the case in the first couple years that could really help him out. So anyway, for me, that was a chance to really dig in and get involved and be helpful in ways that I'm not sure other folks who don't come from sort of more technical domains would've been able to do.

Daniel Scrivner (00:19:27):

I mean, that's an incredible overview. Thank you for sharing. Just the stat of helping hire 200 candidates is insane. And so it's hard to fathom. I feel like most people haven't even interviewed 200 candidates decades into their career. I want to transition now and talk about foundation and a little bit about the cycle of rebirth and kind of reimagination that's happened there over the last 15 years. Part of why I was so excited to have this conversation is, you've been a foundation for 15 years. And I always love talking with people that have this wealth of experience, because I think it's just a very different purview. You've been able to witness many different cycles. You've been able to witness many different trends play out. You've been able to witness changes in the market, changes in dynamics, changes in technology, all while being kind of in this eye of the storm is this is going on.

Daniel Scrivner (00:20:13):

And so, what I wanted to start with, and then we'll kind of unravel the onion bit by bit, but what I wanted to start with is, take us back 15 years ago to when you first joined Foundation and talk a little bit about what it was like there at that time. And then I think it would be interesting too, if you could share a little bit of, what do you feel like has changed the most at a high level over those 15 years? Even just a quick comparison of kind of what stands out as you think about it quickly.

Steve Vassallo (00:20:39):

Goodness. Yeah. A lot has changed. I'm sure every 15 year window, people sort of feel that way, but boy, it felt like just massive transformation. I mean, I joined Foundation, it did feel like many folks in the venture industry were really doing, I don't know, a victory lap on their operating careers. That's probably more pejorative than I mean it to be, but there was a lot of folks who kind of had worked as operators for maybe 15, 20, 25 years, and then were like, "Hey, now's time to be a venture investor." And I think Foundation had a bit of that. Our three founders actually had been investors most of their career, but many of the other individuals were more kind of former operators. And I think there was... A challenge in that is time scales.

Steve Vassallo (00:21:25):

I sort of feel like there was weeks or months... And by the way, the industry, the entrepreneur ecosystem was very much moving at a slower pace at this time, but you could take your time to get to know a company. And even if you think about the kinds of people you were investing in, they were, in many cases, a subset of the folks that you had worked with in your operating career, people that you already knew, maybe they were one degree away. And the challenge of that, of course, is that it reinforces the biases and the behaviors. But in my opinion, it really overlooks opportunity and drives down returns. I mean, I remember chatting with Bill Joy, who my wife worked with for more than a decade. And he was the co-founder son, and he had coined this idea, which of course now is known as Joy's law, but it was this concept that no matter who you are, most of the smartest people in the world work for somebody else.

Steve Vassallo (00:22:17):

And so what I realized was, oh no, if I'm going to be successful, not just at Foundation, but in this business, you got to go find the best entrepreneurs. You got to go build a brand that's so strong that they want to come to you. And then when you do find those special entrepreneurs, you got to move extremely quickly. And unless you're willing to sacrifice the quality of your decision making, you got to then specialize, because the only way to move fast and move towards projects that are going to work out is if you have some degree of focus. And so really, I think what Foundation has become, and I think the industry has become, is people move much more quickly. They're, in general, not trying to be everything to everyone. And Foundation certainly is this is this way.

Steve Vassallo (00:23:03):

There are a few platforms and maybe that work across pretty much everything, but we [inaudible 00:23:08] Foundation, we want to back the best entrepreneurs in our core areas of expertise, and that's enterprise up and down the stack, that's FinTech and InsureTech, and that's crypto and web3. And outside of those areas, we'll definitely experiment. We have this sort of... I have this sort of belief around this concept of what I call the balance between the prepared mind and the open mind. And so we'll definitely kind of go off road from those areas, and we'll add a new practice area kind of every handful of years as we kind of demonstrate that expertise and demonstrate success in the form of great portfolio companies. But we really want to be really sharp.

Steve Vassallo (00:23:47):

We want to be able to make good decisions. We want to be able to help those entrepreneurs out of the gate. We want to be able to help them close candidates, 200 of them. We want to be able to help them find their next investors. We want to help them kind of do everything they need to do to be successful. And I think that requires a lot more focus, a lot more specialization.

Daniel Scrivner (00:24:03):

Yeah. One of the questions that I wanted to ask is, when you think about a 15 year time period, it makes me think of... One of the best books I read that's kind of a retrospective on venture capital recently is The Power Law. And one of the things kind of learn reading through that book is, one, the origins of many venture firms that are still around today, but frankly are kind of a shell of their former selves. And these are firms mostly that are founded in the 1950s, 1960s, 1970s. But one of the things you learn, which is obviously intuitive, is it takes an enormous amount of innovation and persistence and curiosity, and just enormous amount of work to persist in the industry for even five years, let alone 10 years or 15 years, just being super Frank.

Daniel Scrivner (00:24:45):

And so one of the things I wanted to ask was, clearly over the last say 10, 15 years, Foundation has gone through a massive rebirth. Even just talking about one of your focus areas, being crypto and web3, it's very novel. There's not many venture firms that I know of that do enterprise, and also do crypto in web3, I think in the way that you guys have been able to do it. So, I want to ask, as you think about kind of the rebirth or the reimagination of Foundation over the last 10 years, was there a clear starting point? Was there a kind of nagging sense one day that showed up? Was this kind of a line in the sand moment? Was it gradual? Talk to us about how you felt that, and then how that ended up playing out kind of rethinking.

Steve Vassallo (00:25:24):

Yeah. So, I joined just the beginning of our sixth fund, which was... I think they closed it maybe the spring after I joined. And was very large 750 million vehicle, still early stage. There were aspirations of going to new geographies, new strategies, later stage, and even though the firm was sort of a historically early stage. And about halfway through that investment period... And I think I was sort of beginning to absorb some of the sort of performance numbers from the prior funds. Maybe it was the third, fourth, and fifth funds that were beginning to kind of mature enough that you could kind of get a sense for what their performance would look like. And I was a kind of a lowly principal at the time, but I'd bear witness to these performance numbers during annual meetings and quarterly catch ups.

Steve Vassallo (00:26:16):

And I'd look at these things, I'd be like, "Oh boy, I don't think those numbers are that good." But I'm the junior person, so I'll just keep my mouth shut and just go try to find great projects. And so, but about halfway through fund six, as the team was beginning to contemplate the next fund, it was clear that our limited partners were kind of asking the hard questions of the prior funds. So, this is before I joined those earlier vintages. And they weren't good enough. And so, it wasn't one of those sort of nagging, did this kind of sneak up on you thing. It was like, actually, two thirds of our limited partners fired us. And that was kind of one of those really challenging moments.

Steve Vassallo (00:26:58):

I mean, I think back on it. And I'm not a founder of this firm, and neither are the two other partners that I worked with to kind of help turn it around, but there was this founding moment, really, like so many of our startups experience, where you're kind of questioning whether this thing's going to work, whether you should sort of go start something de novo. And so basically, we had to kind of go through this very hard process of downsizing the team, resetting the strategy, and really rebuilding our LP base. And this was back, really starting in 2011. And that was really hard work. And I think, as you said, there are some franchises in our business that have been able to manage generational transition, but the vast majority do not.

Steve Vassallo (00:27:44):

In fact, the vast majority fall prey to founders who don't want to let go, economics that get trapped in the most senior partners, and a next generation that doesn't feel motivated to go out and find great projects and to win. But we got, with some help from our LPs, we got a core base of investors who said, "You know what? You guys are doing great work." And in fact, we would literally take our fund six portfolio and we sort of showed them what the up and comer partners' portfolios looked like. And they gave us... They looked at it, they saw good work, and they gave us the benefit of the doubt to keep going. And that core group of LPs have been incredibly well rewarded for that risk they took on us back in really the fund eight timeframe.

Steve Vassallo (00:28:34):

So anyway, so it was a hard thing to make work. I'm not sure I would do it again or would wish it upon someone else, but we made it happen. And I think what I'm most proud of now... And in fact, I remember one of our LPs who was kind of re underwriting us in that fund eight window said to me, he said, "Well, we think about you guys as this really interesting blend between a established brand and an emerging manager." And as he said it, I was like, oh, that sounds... I'm not sure I like that. And he said, "Well, what we're worried about with our established brands is, are they relevant anymore? The next generation of investors, do they want to join those platforms? And what we're worried about with our emerging managers, they've never lived through a downturn. They don't know what it looks like when markets are in free fall, not for a week or a month, but a year or two years."

Steve Vassallo (00:29:23):

And so we really, as a group, we bring all of that together. And so anyway, I think it's turned out to be a blessing in disguise, but it was a ton of work to make it happen.

Daniel Scrivner (00:29:34):

I mean, you talk about that process of obviously letting the team go, downsizing, having LPs fire you, basically going and having to convince some LPs, or a base of LPs, to take a bet on you. And it immediately makes me think of, obviously, many founders go through that at some point in time. One of my favorite adages, and I've shared this with founders that are going through really tough times, and it's maybe their first time going through one, is companies are built in chapters. I witnessed that myself firsthand when I was at Square, where Square today is a wonderfully successful company. At many point in times, it did not feel like it was going to be successful. And that is true for every enormously successful company.

Daniel Scrivner (00:30:12):

And so one of the questions I want to ask was, one, when you were going through that period, what made it bearable? What did you keep in mind that allowed you to keep pushing through? And I guess, what did you learn from that that has helped you be more empathetic or sympathetic for founders that similarly have to make really difficult decisions sometimes to save the business?

Steve Vassallo (00:30:32):

No, and it gets back to that sort of founding moment, right? We're not necessarily founders, but we experienced these founding moments that kind of call into question everything you thought you knew or believed about your business. But I think what we focused on through that transitional period was what was working well. And then with our founders, it's the same thing, which is, double down on the things that are working on your strengths and do less of the things that aren't. And I think the things that were working for us was this notion of going deep, of becoming truly expert in a few number of areas, where founders would seek us out, where they would have a meeting with us. And after the meeting say, "Wow, you guys asked me questions, or you offered me introductions, or you suggested something that changed the course of my thinking."

Steve Vassallo (00:31:22):

And so we went deep. And then the other piece was, when your partners go deep and they do the work as it were, you have a much easier time trusting them. You trust them to make great decisions. They're not necessarily the same decisions you would make. In fact, you end up kind of embracing that differentiation and appreciating it over time. But if you know they're doing the work, if you know they're doing the diligence and talking to the customers and really understanding the technologies and the risks, if you know their diligence shovels are hitting bedrock when they do the work, you're like, "Yeah, I trust you. I think you should go do this." And so I think we focused on what was working, and we got rid of all the stuff that was sort of felt more political.

Steve Vassallo (00:32:07):

In fact, we changed the way we vote on projects. So, in the old days, there was this sort of very consensus driven approach to voting, meaning to sort of investment committee decisions, if you will, where you did have veto power. Very few folks used the veto power, but there was this sort of averaging effect where you kind of had to get everybody on board. And if you had... It was a four point voting system. If you had two twos, kill the project. And threes were sort of supportive, but maybe I wouldn't do it. And so you ended up with this kind of bowl of oatmeal kind of mush decision. And instead, we moved towards a more conviction based approach. And votes were still there. You still wanted to get the feedback of your partners, but they were purely advisory.

Steve Vassallo (00:32:50):

And so, because they were advisory, I could be more open about the concerns that I had. I could tell you straight up, Daniel, I think the distribution is going to be a really hard problem for these guys to get, or customer acquisition is going to be a real challenge, or that founder doesn't seem like they're going to be able to scale. And so instead of you feeling like you had to kind of go manage, or kind of machine the interactions with your partners, you basically had to... You went and did the work and built conviction. And if you didn't, you didn't do the project. So, anyway, so those were some of the things that I think got us through the hard times.

Daniel Scrivner (00:33:26):

Yeah. It's fascinating. And obviously, something as simple as focusing on what's work, it sounds so simple, almost to be to pedestrian, but obviously, there's something kind of brilliant there, because I feel like in those moments, one of the things you need as a team, as an individual, is just to get back in a positive feedback loop. You want to feel like you're winning or making progress, or putting one step in front of the other in some small way. I wanted to ask, clearly... So at these founding moments, same thing is true whenever you're founding a company, there's difficult... There's a lot of difficult decisions, but obviously you need enormous conviction about where you're headed. And so one of the questions I want to ask is clearly, I imagine you and the two other partners that were basically saying, "Okay, we're going to take this thing and kind of rebuild it and reimagine it."

Daniel Scrivner (00:34:11):

You all three had to get on the same page about where you were going. What was that process like? And, I don't know, walk us through the iterations that it took you to get there. Because I guess what I'm curious is, clearly you talk about... I think the voting mechanics you just described, so simple, obviously really profound. Did that similar kind of where we want to head show up in a thesis change? Did it show up in what you were looking at? How else did that manifest itself?

Steve Vassallo (00:34:40):

Yeah, so we had... I remember it was a partner who joined us maybe 2014 timeframe, Joanne, and she made the comment. She's like, "You guys spend a lot of time at these quarterly offsites." And we actually once a year do just kind of the core team offsite, and then another kind of two to three times a year do offsite with the full investing team. And we spend a lot of time together thinking about what it is we want to spend our time on, meaning as a firm, what are the themes and areas of focus? And when do we kind of promote one to get more resources? When do we feel like one's maybe run its course? And we'll continue to sort of see everything that's sort of happening in that space, but maybe we kind of deprioritizes a bit.

Steve Vassallo (00:35:26):

And so I think we would spend time in those offsite really trying to figure out what was the strategy we wanted to go forward. And I think, as a product person, to come back to that for a minute, and for you, and I suspect many of your listeners who are also product people, would appreciate that. We really did think about how could you build a repeatable process in venture, which sounds kind of crazy, because it's, in some sense, almost idiosyncratic. But what we do in our practice areas is we build what I call our points of view, right? It's as if you were going to go start a company as an investor, even sort of incubate one, you've got to go do a lot of work. You've got to do this foundational research. You're taking many meetings with entrepreneurs and advisors and the smartest people you know in these areas.

Steve Vassallo (00:36:14):

And after you've kind of interacted with and immersed yourself in this primary data, we begin to kind of synthesize our own perspective, our own sort of point of view on the opportunity space. And that then turns into what we think about as sort of these investible insights. These are the sub sectors that we like, the neighborhoods, if you will, that we think a good investment would land in. What are the attributes, in many ways, of a good investment? So that before that founder walks in our door or hops onto the Zoom with us, we almost already know what we're looking for. Now, it's never exactly the thing that we had on a whiteboard or in kind of a presentation that we might might give to each others or to our limited partners, but it's got a lot of those elements. And that gets back to that sort of prepared mind, open mind tension.

Steve Vassallo (00:37:02):

And so when we do that hard work and build those points of view, I think we just come at the categories that we're going deep in a much better spot. And those founders, I think, appreciate that depth. And so we spent a lot more time working on that. And as I said, decision making was a big part of that. And pairing kind of that depth and that focus allowed us to move faster. And so we committed to each other, those things. And then the other thing, and we've been even doubling down on this of recent, is getting even better about how we bring kind of the next generation on.

Steve Vassallo (00:37:38):

So, I kind of, maybe four or five years ago, went down the rabbit hole of conscious leadership and started kind of trying to sort of educate myself, and now actually work with a coach in this area, who is then going to work with our broader team, on all the different ways that we can work with each other and help each other be better partners, that we can elevate each other's games, that we can kind of bring the best out of our partners and communicate even better, not just with each other, but with our founders and our CEOs. So anyway, we really have invested in that depth, in that decision making, and in that ability to have open conversations.

Daniel Scrivner (00:38:16):

Yeah. I mean, to recap, it sounds like you really invested in all the aspects to make a partnership truly work, because I think in venture, it's interesting. Clearly you have a lot of competitive, even if they're just competitive with themselves, competitive people that are showing up, that have ideas about what's interesting, what maybe you should be investing in, what areas you should be looking in. And it's a very different thing to take a team based approach. And one, really invest in foundational, same language, same perspective, same points of view about who you're looking for, so you're all on the same page. But then, as you talked about, the soft, mushy glue of just human connection that keeps you all trusting one another, leaning into one another, and actually working as a well functioning team, which is often just not very talked about.

Steve Vassallo (00:39:00):

Yeah. Yeah, no. And it's mostly overlooked in our business, for sure.

Daniel Scrivner (00:39:04):

Yeah. One of the questions I want to ask was around when... So, you go through this reboot, was there a moment in time where you felt like it was clearly working? And how did you monitor that? How did you know? So, you set out, you kind of look at these old vintage returns, clearly know that something's not working. You go through this crucible moment, this founding moment of this really difficult time to reboot it, and head in this new direction. When did you know it was working? And what were some early clues that you kind of picked up along the way?

Steve Vassallo (00:39:33):

Well, so one of the hard things about our business is, I think venture time constants are very long, but what I think gives you some confidence that you're moving in the right direction is that, within about I'd say sort of 12 to 18 months into our fund date investing period, so this is kind of end of 2015, beginning of 2016, we were beginning to see nice markups from firms that we respect. We were feeling like more and more founders were seeking us out. And then ultimately, of course, it becomes manifest in the companies that you invest in, and then the real returns that you deliver in the form of distributions to paid in capital. So, I think it was those early mile markers were really those markups. And I think that definitely helped. And I also feel like we kept as well... Even as that stuff was coming in and we were starting to feel better, we kept looking a little bit further out on the horizon and saying, "Okay, well, what do we need to do to keep getting better?"

Steve Vassallo (00:40:37):

And I think when you have a long enough focal length, you can weather the near term ups and downs, the markets kind of doing their crazy things, and stay focused on, again, on the things that you're doing well. And so I think so much of building something really hard is just showing up every day and doing the thing that you committed to. And so I'd say, yeah, back... I'd say kind of 2016, we're back to our fighting weight, the core team's really gelling, we'd added some new folks who were really fired up, we're getting into some great projects and kind of beginning to be known for being leaders in those areas where we spike really hard.

Daniel Scrivner (00:41:21):

Yeah. One of the kind of aspects of this transition at Foundation that I find really interesting is this move into crypto and web3. And I think it would be helpful to start, because I'm not sure how many people know just how prolific and how successful you guys have been there, because it was somewhat surprising to me as I was digging in. Talk a little bit about one, when you got interested in crypto and why you got interested in crypto, and then just at a high level, some of the investments you've made to date. And then we'll kind of double click and go a couple levels deeper.

Steve Vassallo (00:41:50):

Yeah. So, really the beginning of our interest in and around blockchain crypto went back to 2013, 2014 timeframe. And it really started with... So, one of those up and comers who joined us in that crucible moment where we were kind of rebuilding the firm, Rudolfo, he was the first one to kind of fall down the rabbit hole. He's originally from Mexico City. Prior to Foundation, he had worked in financial services at McKinsey, focused on their emerging markets. And he was immediately struck by the potential for cryptocurrencies to disintermediate all the traditional financial institutions that basically weren't trusted in Mexico, and in Latin America more broadly. You had this sort of entire continent, hundreds of millions of people who didn't trust institutions, who were constantly worried about debasement of their currency, worried about corruption, experience just insanely high transaction fees when their family would go to the states and send money back. And so he really, I think, was connected to and resonated with that as sort of the promise.

Steve Vassallo (00:43:07):

For me, and I started investing the space a couple years later. The lens for me was actually pretty different. It was getting excited about the wicked problems that needed to be solved in order to build these permissionless, highly distributed, secure, but still needed to be fast systems. That, to me, lit up all of my kind of nerdy, electromechanical distributed systems neurons, many of which I sort of engaged in building companies as an entrepreneur. And so I got really taken by that. And so it was really the intersection of the sort of solving hard problems, but that also had meaningful use cases.

Steve Vassallo (00:43:54):

And that's what I think got us going. And then we... I mean, one of our first investments was in Brave, which is a browser company. Probably many of you and your users have experienced using that. And I've known Brendan since 1995, '96 timeframe, extraordinary, brilliant founder and builder, inventor of JavaScript, co-founder of Mozilla, just ferociously smart human who's been on this mission to sort of address privacy and usability, and get rid of ads and sort of broken business models that are so pervasive in ad tech. And then we were early investors in OpenSea, as they were graduating from YC. We were among the first investors in Algorand, extraordinary team out of MIT, then block stacks. Solana, we were among their first venture investors in March of 2018, and then again in September of 2018. World was getting very dark and crypto land in 2018, for those of you who might remember. Then we wrote another check into Solana in 2019.

Steve Vassallo (00:44:56):

In fact, we invested in every, or purchased tokens in every round there prior to their main net launch in 2020. So, very, very early conviction in some technologies that I think are really transforming that space. And there's another 35 or 40 investments behind those, but those are some of the earliest ones. And I think maybe one last point is, you said it sort of unusual for a firm like ours that has this experiences in enterprise and in FinTech to then kind of lean into crypto. In many ways, it was an extension of those practice areas. So, I mean, when I think back on the thesis in Solana, I could have looked at it just as much as an enterprise infrastructure company.

Steve Vassallo (00:45:40):

I mean, that team has just extraordinary technical chops, really around building highly distributed systems initially inspired by TDMA, algorithms applied to highly constrained networks, cellular networks, now sort of being applied to highly constrained blockchains. That team could very easily be characterized as among the best sort of infrastructure engineers, just happen to be focused on this new and emerging area of crypto. And same thing with some of the FinTech applications in de-fi. I mean, the fact that we have been working in and around traditional finance for two and a half decades, and that we understand what's what works, and bluntly where those companies and categories need to be completely reinvented, where there's a sort of opportunity for a complete replatforming of those technologies, we know that really well, because we've been investing in it. So, I think the fact that we bring some of that history and understanding has actually made us better investors in some of those crypto projects, particularly in those verticals.

Daniel Scrivner (00:46:48):

Yeah. Well, I'm not surprised by that at all, but I do think you deserve more credit, because I think... My take, or at least my perspective is, I think a lot of it seems like, in your case, you were able to look through, look past the crypto label and really understand, one, the problems they were solving, which for anyone that's problem focused, if you just look at what it takes to build incredibly fast decentralized infrastructure, like what Solana has done, it is in insane. It's an insane, massive orders of magnitude problem to be able to solve that. So, if you look through and understand the technical problems they're solving and the problem spaces that they're working in, and just the technology that they're building, I think you clearly have a very differentiated point of view. But part of why I wanted to ask that was, I guess one of the things I'm curious about is, and this is more anecdotal than anything else, but something... A sense that I get is that a lot of institutional investors still, one, don't quite understand crypto, and two, aren't super comfortable with it.

Daniel Scrivner (00:47:45):

And I think that's partially because there's this age old debate. Is it replacing finance? Is it the new version of finance? Is it an alternate universe that just enables different things? And I want to get into that in a second. But one of the questions I wanted ask was, did you have to actively go about making the case to invest in crypto to your LPs? And what was that conversation like to try to get them up to speed and comfortable?

Steve Vassallo (00:48:07):

Yeah. So, it's a great question. And I think in general, what I've learned in 15 years in our business is, it's definitely a forgiveness, not permission kind of narrative. And so if you were ex ante asking LPs, and I remember several of them back in the kind of 2015 time zone, but when we'd give our updates, they think we were kind of completely off the wagon, just like you guys are investing in these kind of libertarian nut jobs, lots of speculators and mercenaries. And so bluntly, we didn't ask them for permission. We basically said, okay, we're going to make a number of... It wasn't small, but it was sort of 25-ish investments in that first fund, where we kind of really got focused on crypto and we made, and we made smaller investments.

Steve Vassallo (00:48:56):

So, the way I think about these things is it's sort of a bet sizing exercise when you're investing in these emerging areas. And so our investments in Solana, I mean that was two and a half million dollars over the course of three rounds. So, that's tiny compared to some of the other investments we were making in other infrastructure companies. And that was also the case for Algorand and OpenSea and Brave, and others. And so what we did is we basically made smaller investments that in aggregate totaled a single core investment out of our fund eight portfolio. And so we managed risk on the cost basis perspective, but then turned that, call it sort of 20 million into five or 6 billion. So, I think with LPs in general, you're not advertising kind of the shiny new thing that sounds really scary until after you've proven that you are successful at doing it. And that's worked out pretty well for us.

Steve Vassallo (00:49:52):

I mean, I do think even today though, there are institutional investors who look at crypto and think this whole thing still hasn't proven its wears in terms of use cases for enterprises or end consumers, still has a lot to prove. And I think that's fair feedback, but I think much of the same could have been said about the web in 1995 or '96. And I still remember using the mosaic browser in my office over the Stanford Center for Design Research. And it wasn't casually obvious that Google was going to be built on top of that or Facebook, or 15 years later, Uber, for that matter. So, I still think we're in those early, early days where you're kind of trusting that these new technologies are going to then light up applications that you could have never conceived of ex ante.

Daniel Scrivner (00:50:43):

Yeah. One, I also think that's the purpose of venture. Venture is not meant to be investing in things that are a hundred percent proven with certainty, because then all the returns are gone. You have to do this perpetually uncomfortable exercise of investing in the things that today seem under baked, somewhat sketchy or hard to imagine what this future might look like. That is literally where you should be putting those dollars to work. But I love the mechanics of, yeah, not asking for permission, starting with small bet sizing. And clearly, one of the things you proved is you can still start with small bet sizes and still make incredible returns if you make good bets at those small sizes.

Steve Vassallo (00:51:20):

Yeah. Well, this is a part of our world where there are 1000x, 2000x returns. And that doesn't happen every five years in the venture ecosystem, and so we love that asymmetry of opportunity.

Daniel Scrivner (00:51:35):

Yeah. I want to go back to something you talked about, prepared mind versus open mind. One, could you maybe flesh that out a little bit more and talk about how that's shown up or how you pushed that forward? I know you've brought on a lot of younger partners. I'm imagining this prepared mind versus open mind is still playing out even today in conversations you're having. But I also imagine that these initial investments in crypto were probably a prime example of prepared mind versus open mind. So, talk a little bit about that principle and how it showed up.

Steve Vassallo (00:52:04):

Yeah, so the prepared mind kind of gets back to this concept of going deep, building these sort of points of view, almost as if you were going to start a company, build a company from scratch and in one of those areas. And that looks more like what I used to do as a product designer, as a product manager, not as an investor. And I think few folks actually approach the venture industry that way. But, I mean, in spite of all the time we spend doing that, the time we spend getting, smart in specific areas, we also acknowledge that some of our best investments emerge through a collision of accidents, of meeting the right people, when they're kind of looking for some help that we think we can kind of uniquely a system with.

Steve Vassallo (00:52:53):

And so I think the ambition to sort of have some points of view, to kind of put some stakes in the ground, to publish your ideas... I mean, when I worked on the way to design my book, I was sort of putting myself out there. I was talking to 50 designer founders. I was sharing some things that were hypotheses that I had about kind of a time for designer founders to really kind of begin to kind of take the reins of great entrepreneurial endeavors. And so whether it's in the form of a book or a talk at a tech crunch conference or a blog post or an article for Forbes, I think we were putting ourselves out there. That's the sort of ambitious part. But then there's a humility in our business, which is knowing that we aren't the ones building the future. We're the passengers here, and the facilitators, with capital and with time and with focus and feedback and concentrated effort, but we aren't the ones who are going to kind of go build that from zero to one.

Steve Vassallo (00:53:53):

And so I think that's the open mind part of it. The prepared mind is the work we do to kind of, in some senses, attract those entrepreneurs to have the first conversation, but then the open mind is the humility part of our business.

Daniel Scrivner (00:54:05):

Yeah. And you need both, I think to one, spot interesting opportunities that are overlooked or not recognized by others on kind of the radar screen. And I think you need both in order to one. I was part of... Again, going back to why I was so interested in having this conversation, my experience is it takes both of those to be able to survive and thrive over multi decade timeframes. And so I imagine that's been an important part of helping Foundation be so successful. I want to kind of close out by, I guess, asking a couple of, I don't know, lessons learned, a-has, things you've learned over the last 15 years. And one of the ones I wanted to start with... I mean, you talked about at the beginning, some of the biggest changes you've observed.

Daniel Scrivner (00:54:44):

What are the biggest things that you, as an individual, as an investor, have learned that have either been surprising to you or counterintuitive that you kind of picked up at some point in time, but things that you didn't necessarily think of or know when you became an investor, so things you've picked up on the job over the last 15 years?

Steve Vassallo (00:55:03):

I think I began to know this just as I was starting here at foundation, but boy, it has been underlined and highlighted and bold a hundred times since, is really this sense that the best product matters, but it is not what defines a generationally important company. And it's very humbling for me to say that as a product person. I remember there's this sort of ethos of the Stanford product design program, and at IDEO in particular, of the best idea wins. And I remember, even at IDEO, seeing companies that competed with some of the ones that we were... We were working on a product for one client or another, and we would see some competing product be wildly successful in the market, but it was a steaming pile of turd. And we'd say, "Well, wait a minute. What's going on there?"

Steve Vassallo (00:55:55):

And what I began to appreciate, and I think today is more clear than ever is distribution matters so much more than I think us product people appreciate in those early days. And there's often kind of a distribution hack that some startup will use to kind of get going, and figuring out how you kind of bootstrap and not just build a great product, because I really do believe, well, if you're going to work on something, you might as work on something hard, and you might as well do it extraordinarily well, but boy, you better think about distribution, and you better think about, not necessarily from day zero, but your business model has to be something that is top of mind. Maybe you choose to sort of put it kind of on a back burner in the early days, but I do think that sensitivity to go to market to how you acquire your customers, how they find you, and how you kind of ultimately build a wildly profitable business, is something that is just completely obvious to me today that wasn't maybe 15 or 20 years ago.

Daniel Scrivner (00:56:59):

Well, totally. I mean, as someone who spent many years, my career as a designer, it's difficult to hear, because you think that if you just design it better than anyone else, if you build it better than anyone else, that it's going to naturally take off. And I think maybe it's a different way of saying what you've just said, but I think the lesson I've learned is, the world's best companies really live in a super position, where one, they're pervasively excellent in many, many, many areas, and that it really does, I think, take excellence, not just in design and engineering, but in distribution, and in finance, and in fundraising, and in marketing, and you can go down the list, to create something that is much bigger than the sum of the parts. One of the questions I want to ask around the way to design is maybe one or two things that were surprising that you learned doing that. And so to kind of recap it, for that book, you went out and interviewed, I think it was at least 50 50 plus founders, designers. You had some kind of theses, hypotheses heading into there.

Daniel Scrivner (00:57:56):

You go and have these all these conversations. What were the most surprising deltas, things you believed, heading into that project, that changed your mind on by the time the book was out and published.

Steve Vassallo (00:58:08):

A couple things. This will maybe sound more negative than I mean it to, but I feel like so much of the culture in Silicon valley is... There's sort of these tag phrases that we have around things like... I mean, I'm not a huge fan of minimum viable product. I remember when I interviewed Joe Gebbis, co-founder of Airbnb, for the book, kind of just riffing with him. We were at an offsite somewhere up in Marin, and riffing with him on this concept of what I talk about in the book as the minimum awesome product. He thinks about products as, the first time you use a product as kind of a first date. And if you were kind of to finish your first date, and you're like, "Hey, how was the date?" and she said, "Oh, that was minimally viable," you'd be like, "That sucked. What did I do wrong? I guess we're done. It doesn't work."

Steve Vassallo (00:58:56):

And so I think we fall prey to these sort of tagline, [inaudible 00:59:01] kind of product things. And I mean, even so much of kind of design thinking I think has sort of been shortcut or shorthanded into things that are kind of maybe easy to describe. And so I don't think we really understand them as deeply, but I'd say that probably the one that I think became so clear to me in the process of writing the book, and is probably sort of obvious now in retrospect, but was sort of this concept of product market fit as this sort of static thing. And I think in the valley, we talk about it.

Daniel Scrivner (00:59:32):

It's like a level in a game.

Steve Vassallo (00:59:34):

Yeah, exactly. It's like a level. You get it as soon as you get it. Then you kind of triple your marketing budget and you double down on your ad spend, and it's like you found it between the couch cushions. And it's not that. It is very dynamic. And I think it gets back to the conversation we were having around how to reinvent yourself, how to sort of think through those kind of founding moments. And the way I think about product market fit is, it is a liquid. It's not a solid. And what I mean by that is, look, achieving product market fit, it's a great thing, right? A lot of companies never get there, but it's a transitory achievement. It's a false summit. And that's because competitive landscape changes, your customers end up wanting more, the technology shifts, and it enables new features and functionality.

Steve Vassallo (01:00:24):

And so the goal really is not to achieve product market fit, but rather to achieve kind of a drumbeat of regular and repeated product market fits. And I think companies who do that well are the ones that stick around for decades. And it's really, really hard to do. And I don't remember kind of... I guess it was Joe as well, sort of in a different conversation, but they think about it Airbnb around sort of building not the machine, but the machine that builds the machine. And so I think you've got to kind of get better fractally around these things oftentimes to sort of see how to do that at kind of the process level, but that probably was one that I'd say sort of challenges conventional wisdom around product design and what it means to sort of be successful or build a successful company.

Daniel Scrivner (01:01:12):

Totally. And I mean, it's so well said. And I think the funny thing is, anytime you hear one of those... Hearing that obviously, it's somewhat counter, because clearly you've heard this conventional wisdom. You hear people talking about product market fit as if it is a checkbox on a list. And as soon as you've checked it, you're good to go and you move on to the next one. But anyone that's been in a company intuitively knows that it is this liquid, very mushy, very difficult thing, and it's much harder to sustain it than it is... I don't know, it's like winning a super bowl once versus winning a super bowl seven times. It's like, do you want to win the game once, or do you want build a dynasty? Anyways, it's so interesting and so well said. The last question I want to ask is going back to your path to becoming an investor. It's something that you never really set your sight on and decided this is what you wanted to do. You ended up kind of stumbling into it, and yet you've had this fabulous, wonderfully successful career at Foundation, doing that.

Daniel Scrivner (01:02:07):

What advice would you give to young and inspiring venture investors, or people that maybe aren't sure whether they should be an investor or not, that are trying to sort that out in their own minds?

Steve Vassallo (01:02:18):

Well, we're all influenced by own experiences, maybe over overfitting them, but my advice to folks who are still early in their career, early enough to take risk is, is to go build something, is to get a real job, to join a rocket ship or to build something from scratch. I think there is sort of... I used to talk about this as the efficient frontier for your career, and kind of anything in between is a hard spark to be in. But the return on experience of building your own company is invaluable, and the return on experience, and in many ways, the return on kind of financial investment in your time in joining a rocket ship company is also quite good. So, I think my advice oftentimes is, get a real job, learn how to sell, learn how to scale yourself and your team, learn how to lay off a fifth of your team when hard times hit, but do it with respect, and then figure out how to build back up from there.

Steve Vassallo (01:03:13):

And I think in so many ways, this is informed by my experience of building products and teams, which is like, until you've built something and broken it or helped manage it through some really scary times, which even the best companies go through at least a handful of those really scary white knuckle moments, until you've done those things, you don't understand it. And so I think the way we help our founders, more than anything, is we have a deep sense of empathy for what they are going through, and we can help them through their hardest challenges. And I think that they trust us, because we have done that ourselves on the other side of the table in most cases. And so I think that's probably my advice to folks who are thinking about a job in venture, is maybe let it happen to you instead of seek it out explicitly.

Daniel Scrivner (01:04:07):

Yeah, and develop that scar tissue first, because you're going to need to lean on it and point to it and be able to empathize with it in the role. Yeah, it's very difficult. Well, thank you so much, Steve. This has been an incredible interview. I could talk with you for three more hours. But unfortunately, our time has come to a close. So, I just want to say thank you so much for coming on and sharing a little bit about your story and the journey to build Foundation.

Steve Vassallo (01:04:29):

Great fun. Thanks so much, Daniel. Great to chat with you. Thank you.

Daniel Scrivner (01:04:34):

Thank you so much for listening. You can find the show notes and text transcript of this episode at That's 120. And you can learn more about Foundation Capital at, or by following foundationcap on Twitter. At, you can find all of our other investor interviews, profiling investment firms, including Treehouse Capital, NFX, Greycroft, Pantera Capital, Compound Kings, and more. In every interview, we deconstruct the ideas, frameworks, and strategies they use to generate incredible returns and incredible track records. You can find videos of all of our interviews on YouTube at On our channel, you'll find all of our full length interviews, as well as many, many of our favorite short clips from every episode, including this one. So, make sure to subscribe. We post new videos and clips every single week. And if you haven't already, make sure to follow us on Twitter and LinkedIn @outlieracademy. Thank you so much for listening. We'll see you right here with a brand new episode next Wednesday.

On Outlier Academy, Daniel Scrivner explores the tactics, routines, and habits of world-class performers working at the edge—in business, investing, entertainment, and more. In each episode, he decodes what they've mastered and what they've learned along the way. Start learning from the world’s best today. 

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