In this episode of 20vc, host Harry Stebbings interviews Michael Eisenberg, a seasoned venture capitalist and equal partner at Aleph, a leading early-stage firm with a $550 million portfolio including Lemonade, Melio, and Honeybook. Eisenberg shares his unconventional journey from political science graduate to influential VC, detailing his early career in political consulting, his pivot to venture capital in Israel, and the founding of Aleph. He emphasizes the importance of constant investment in innovation, the art of reserve management, and the psychological impact of market cycles on investing. Eisenberg also discusses the value of maintaining an open mind, being people-focused rather than industry-specific, and the significance of long-term relationships in both personal and professional spheres. Throughout the conversation, he reflects on the lessons learned from both successes and failures, and the importance of embracing uncertainty and optimism in venture capital.
"Now Michael is co-founder and equal partner at LF. With over $550,000,000 under management and a portfolio including the likes of Lemonade, Melio and Honeybook."
This quote introduces Michael Eisenberg and LF, highlighting the firm's significant capital under management and notable portfolio companies.
"This is important about the history of venture capital in the 90s. There were the four horsemen, investment banks. Hamburger and Quist, Alex Brown, Robertson Stevens, and Montgomery Securities."
This quote provides context on the influential investment banks of the 1990s, known as the "four horsemen," which played a significant role in the tech boom of that era.
"The most important thing you can do in life is enable the employment or employment people who can earn an honest and decent living."
This quote reflects the advice from a spiritual leader that inspired Michael to contribute to the Israeli economy and job market, shaping his career path in venture capital.
"But innovation is constant. So I knew a lot of people in 2000, 2001 who took their foot off the gas from an investment perspective, and they let the psychology of the Nasdaq impact the psychology of early stage investing."
This quote highlights Michael's philosophy that despite market cycles, innovation continues, and investors should not let macroeconomic conditions solely dictate their investment strategy.
"Reserves is an art and not a science."
This quote emphasizes the nuanced approach to reserves management, acknowledging that it requires judgment and is not solely based on formulaic methods.
"History tends to prefer the preparative mind, and it prefers those people who keep something in reserve to kind of plow in when everybody else is scared."
The quote emphasizes the advantage of being prepared and having reserves to seize opportunities during turbulent times, particularly in the context of business and investment.
"A lot of founders have used this time as an example of why always be raising is the right mantra to take."
This quote reflects the perspective of some founders who believe that continuous fundraising could have provided a safety net during the pandemic.
"If you have a high competitive moat, what's commonly misrepresented to, in my view, as network effects or an increase in competitive boundary, you may be able actually or even advantage by taking less capital over time, because it enables you to be more nimble and not need to kind of modulate your growth to catch up with the valuation expectations and capital return expectations."
The quote discusses the strategic advantage of having a strong competitive moat and how it can allow a company to thrive with less capital by remaining agile and avoiding the pressure of inflated growth expectations.
"Technology has become more part of the mainstream economy. So no one invested in insurance before and called it a tech investment. But lemonade has proven that insurance is really technology at the end of the day."
This quote highlights the transformation of traditional sectors like insurance into technology-driven industries and the impact this has on investment strategies and opportunities.
"The one constant is people don't change."
This quote encapsulates the idea that despite changes in the market and technology, human nature remains constant, influencing economic cycles and business outcomes.
"Venture capitalists deal with uncertainty. You actually don't mind the catastrophic outcomes. You could lose all your money. What you're looking for is asymmetrical upside."
The quote distinguishes between the risk management of hedge funds and the uncertainty navigation that venture capitalists engage in, focusing on the pursuit of significant, albeit uncertain, returns.
"A portfolio should have somewhere between 15 and 25. Call it shots on goal."
This quote explains the venture capital approach to portfolio construction, which is not about industry diversification but rather about investing in a variety of entrepreneurs with the potential for high impact.
"You need to kind of invest consistently in the venture business, almost in roughly the same amount of companies every year, to be able to get your shot on different innovations."
The quote stresses the importance of a consistent investment strategy over time to take advantage of emerging innovations and technologies.
"If you have a large fund like he does, we are deep believers in the small fund theory."
The quote reflects the belief in the small fund theory, suggesting that smaller funds can achieve high returns without the need for high capital concentration limits, unlike larger funds.
"So on a personal level, I want to be a company builder alongside the entrepreneur and not an investor."
This quote highlights Michael's personal approach to venture capital, emphasizing his desire to work closely with entrepreneurs rather than merely provide financial investment.
"I'm a generalist mostly because I don't know much about anything."
This quote explains Michael's self-perception as a generalist, which allows him to keep an open mind and focus on the people aspect of investments.
"Being as dumb as I am and looking at this and knowing nothing about insurance turned out to be a hell of an advantage."
This quote illustrates how a lack of industry-specific knowledge allowed Michael to see the potential in Lemonade that others with deeper knowledge might have missed due to perceived risks.
"If the founder wants my money based on Price, I'm not doing the deal."
This quote conveys Michael's heuristic that a founder's focus on the monetary value of an investment over the strategic partnership is a red flag for him.
"One of the things you learn from that is you have to let people come to their own conclusions over time."
This quote reflects Michael's approach to board management, where he supports but does not force his views on others, allowing them to reach their own conclusions.
"I tend not to dwell on the failures. I just kind of move on and move past really quick."
This quote indicates Michael's philosophy of not fixating on past failures but instead moving forward quickly, learning from experiences without letting them hinder future decisions.
"Bruce once told me, I think it's true, you need to make sure you manage your time well, because you never know when the next Google walks into the lobby."
This quote underscores the importance of effective time management to ensure readiness for seizing potential game-changing investment opportunities.
"I think relationships matter a lot, and relationships matter in the venture business and personal life and everywhere else."
This quote highlights the universal importance of relationships across all areas of life, including business and personal spheres.
"And long term relationships matter even more than that."
Michael underscores the added value and significance of relationships that are sustained over a long period.
"I think I've been a better parent of older children than I was of younger one."
He reflects on his own parenting, suggesting a personal evolution and greater aptitude in relating to his children as they grew older.
"I don't believe in it. I think it's a failure of modern culture to seek work life balance."
Michael expresses his belief that striving for work-life balance is a cultural misstep and an unattainable goal.
"Balance is a flawed pursuit in my view."
He considers the quest for balance to be inherently flawed and not a worthwhile endeavor.
"You need to develop independent kids. They need to become independent adults by themselves."
This quote encapsulates Michael's parenting philosophy, which focuses on nurturing self-sufficiency in children.
"So you can find me diving into my books for hours when I'm on deadline, buried in my basement, or yesterday or day and a half ago."
Michael illustrates his approach to imbalance by giving examples of his total immersion in tasks that require attention, whether work or family-related.
"God lives in uncertainty."
Michael's faith leads him to embrace uncertainty as a divine characteristic.
"The world is getting better."
He expresses optimism about the progression of the world despite its uncertainties.
"It's a mysterium. Tremendous, to use the latin phrase, that we can kind of behold how amazing."
Michael reflects on the beauty and mystery of life and human connections, even amid uncertainty.
"Most of my books are around textual analysis and then modernization of ancient concepts that appear in the Bible into modern economics and technology."
Michael describes his method of integrating ancient wisdom with contemporary issues in his writing.
"The Bible has the most active users in the history of humanity, and it's had the most written about it in the history of humanity."
He praises the Bible for its enduring relevance and widespread influence.
"Most of them have been founders that blow up in one way or another."
Michael acknowledges the commonality of failures in venture deals related to founder issues.
"I've become obsessed because of Josh Hanna. He's made me obsessed about Defi because it fits kind of my distributed everything."
He shares his current interest in DeFi, influenced by a colleague, and how it aligns with his broader interest in distributed systems.
"I'd like to be more relationship driven. I love the people and I miss that a bit."
Michael expresses a desire for a return to a more personal, relationship-focused approach in venture capital.
"I hate this Zoom thing, by the way. This is the worst."
He voices his dislike for remote interactions, preferring in-person connections.
"The last seven investments I've made are all in stealth, so literally."
Michael reveals his preference for privacy in the early stages of his investments.
"We're going to brand Ach checks and payments and we're going to create a consumer user experience for small businesses."
He shares the strategic insight behind his investment in Melio, highlighting the importance of a consumer-focused approach to business payments.
"Thanks Harry. I hope I won't have to wait another 2697 episodes in order to see again. That'd be unfortunate."
Michael humorously comments on the potential wait time before his next appearance on the podcast.
"And speaking of Milo, we have Matan on the show this coming Thursday and so stay tuned for that."
Harry Stebbings announces an upcoming episode, maintaining listener engagement and anticipation.