20VC CRV's George Zachary on His Relationship To Money and How it has Changed Over Time, Why The Best Founders Have Often Experienced Parental or Home Instability and The Stories Behind Investing in Unicorns; PillPack, Yammer and Udacity

In this episode of "20 Minutes VC," host Harry Stebbings interviews George Zachary, general partner at CRV, a venture firm with a successful track record including investments in Airtable, Doordash, and Dropbox. George, with a 21-year venture career, shares insights on the intersection of computer science and bioengineering in advancing health, reflecting on his tenure at CRV and previous experience at Mohr Davidow Ventures. He also discusses the importance of founder conviction, the influence of personal challenges on his investment focus, and the dynamics of wealth on personal relationships. Additionally, George emphasizes the significance of generational transition in venture firms, advocating for the inclusion of younger partners with fresh perspectives. Throughout the conversation, George's investment philosophy shines through, prioritizing human connection over data and championing founders with a need, rather than a mere desire, to create impactful companies.

• George Zachary is a general partner at CRV, an early-stage venture firm with a successful portfolio.
• CRV's portfolio includes companies like Airtable, Doordash, Dropbox, and Niantic.
• George's focus at CRV is on advancing health through bioengineering and computer science.
• His notable investments include Pillpack, Udacity, Scribd, and Health IQ.
• George's venture career began before his time at CRV, with over six years at Mohr Davidow Ventures.
• The show host, Harry Stebbings, expresses admiration for George's 21-year career in venture capital.

"So I'm very excited to welcome George Zachary, general partner at CRV, one of the nation's oldest and most successful early stage venture firms, with a portfolio including the likes of airtable, Doordash, Dropbox, Neantic, and many more."

This quote introduces George Zachary and the venture firm CRV, highlighting the success and notable companies within their portfolio.

• George became interested in computers before the internet era, starting in 1977.
• His career was a series of startups, leading to an offer to join the venture business in 1995.
• Initially, George misunderstood venture capital as a leisure-focused career but later realized its true nature.
• He was drawn to venture capital because of the opportunity to work with innovative people and ideas.

"I got involved with computers when computers were called computers and there was no Internet... I realized it was about meeting super interesting people that wanted to start doing new cool and exciting things and having a chance to work with them."

This quote explains George's initial misconception about venture capital and his eventual realization of its true nature involving collaboration with innovative individuals.

• George witnessed the dot-com bubble in 2000 and the financial crisis in 2008.
• These events taught him to be cautious and not get swept up in overvaluation and hype.
• He became more conservative with investments, especially those requiring significant capital over time.
• George emphasizes the importance of being mindful of the investment cycle's stage when financing companies.

"It's made me think about being careful about getting involved in capital intense projects, that the further on you are in the cycle, the more careful you should be about financing companies that will take lots of rounds of capital."

This quote reflects George's cautious approach to investing in capital-intensive projects, especially later in economic cycles, due to the risks associated with potential overvaluation.

• George believes in investing in great companies at good prices rather than good companies at great prices.
• His decision-making is based on personal conviction and reasonable entry pricing.
• He acknowledges the difficulty in pricing, especially during times of inflated valuations.
• George reflects on how valuation expectations have changed over time, with seed deals becoming more substantial.

"I'd rather invest in a great company at a good price versus a good company at a great price."

This quote encapsulates George's investment philosophy, emphasizing the importance of conviction and reasonable valuation in decision-making.

• George has a high success rate in venture capital, attributed to his ability to assess founders and ideas.
• He focuses on personal excitement and the founder's presentation rather than market size reports.
• His early investment in Elon Musk's first company exemplifies his conviction-led approach.
• George credits his upbringing in New York City for his ability to quickly gauge people and their energy.

"I've had this my entire career, and I do not know why. It comes basically from the sense of listening to the founder and listening to the idea of what they're doing, being very focused on everything they're saying..."

This quote demonstrates George's approach to investment decisions, which is rooted in listening closely to founders and their passion for their ideas.

• George differentiates between charisma and force of will in founders.
• He references advice from his mentor, Catherine Gould, about backing founders with strong willpower.
• The best founders, according to George, are those who are smart, have a working business model, and prefer minimal interference.
• He agrees that charisma is not essential for success, but a strong willpower is.

"Most of the great founders that I've met, they will listen to the data and act and they will also listen to you, but they'll take your input into account. But they're not going to necessarily do what you want."

This quote highlights the importance of founders who are data-driven and independent, rather than being swayed solely by external advice or charisma.

• The primary goal of venture capitalists is to generate returns, not just to make investments.
• The size of the investment does not dictate the success; the returns do.
• Limited partners are interested in the returns that venture capitalists can create for them.
• There is a potential misalignment in the venture industry where the focus on managing large funds and earning management fees can diverge from the goal of producing returns.
• This shift in focus became prevalent in the mid to late 1990s and is associated with the growth of multibillion-dollar funds.

"We're in the returns business, not the investment business." The quote encapsulates the idea that venture capitalists should prioritize generating returns over merely deploying capital.

"Limited partners don't pay us for investing, they pay us for creating returns." This quote highlights the expectation from limited partners that venture capitalists deliver profitable returns rather than just execute investments.

"If you lose sight of the returns, the business is over." The quote underscores the importance of maintaining a focus on returns to sustain a venture capital business.

• There is a discrepancy in how venture capital funds and founders perceive successful exits.
• For venture capitalists managing large funds, a $150 million exit may not significantly impact their return profiles.
• The cost of living and the value of money have changed over time, affecting how venture capital returns are perceived.
• Fund sizes have increased, especially after the success of companies like Google and Facebook.
• Founders have a personal investment in their company, while venture capitalists have a portfolio approach.
• The need for founders to create a successful company is often driven by personal motivations, which can differ from the motivations of venture investors.

"For the founder, there's just one investment. The $30 million to that person could mean a big deal to a venture investor." This quote illustrates the difference in impact that a successful exit can have on a founder versus a venture capitalist.

• Venture capitalists look for founders with a strong need to create a successful company.
• The need to succeed can stem from a psychological drive to master chaos, often rooted in childhood experiences.
• Building a close relationship with founders is essential for understanding their motivations and building trust.
• Investing in a founder involves assessing their coherency with the company's mission and their personal motivations.
• Quick investment decisions can be made based on a strong conviction about a founder's capabilities and vision.

"Does this person need to create a big company? Not just want, but need to." This quote emphasizes the importance of distinguishing between a founder's desire and their intrinsic need to build a successful company.

"I do believe that parental instability or home instability leads to a situation where the smartest and most interesting founders...learn how to master chaos." The quote suggests that personal challenges faced by founders in their formative years can contribute to their drive to succeed and ability to overcome business challenges.

• The human element is often prioritized over data in investment decisions.
• A founder's background, passion, and understanding of the problem they are solving are crucial factors.
• Rapid investment decisions can be made when a venture capitalist has a strong belief in the founder's potential.
• The ability to discern the capacity of a founder to outperform incumbents is a key consideration in the investment process.

"I just had an absolute strong sense that this person was capable of doing it." This quote reflects the venture capitalist's confidence in a founder's ability to succeed based on their background and commitment.

"I've always been in a human first, data second." The quote reveals the speaker's consistent approach to prioritizing the founder's qualities over purely data-driven analysis in the investment process.

• Venture capital industry has high turnover, with many exiting within the first few years.
• Remaining successful investors often focus on the human aspect of businesses while utilizing data for decision-making.
• Investors seek founders who are human-centric and data-driven.
• Market size skepticism is common among experienced investors; they don't fully trust market size projections.
• Historical examples like Yahoo and eBay show that market size estimations can be misleading.

"In 19, 95, 96, when I got in, there were about 50 people that entered into venture, and as of several years ago, there were about five of us left." "So we look for founders that are human centric. People then also use the data to drive the business."

These quotes highlight the competitive nature of the venture capital industry and the importance of human-centric and data-driven approaches for both investors and founders.

• Market size is often used as an excuse by VCs to avoid deals.
• Successful investments have been made in companies that initially appeared to have a small or non-existent market.
• George Zachary emphasizes the importance of the founder's vision over market size estimates.
• The venture industry requires new investors to conceive of innovative business models.

"I don't really ever trust market sizes. It's really in the mind of the decider and the mind of the founder." "There wasn't the concept of network effects in the mid 90s."

These quotes reflect skepticism towards traditional market size assessments and recognize the evolving nature of markets and business models.

• Personal health challenges can be a catalyst for investors to pivot into new sectors like biotechnology.
• The complexity of the biotech and bioengineering fields requires deep knowledge, often necessitating partnerships with experts.
• Investing in biotechnology involves a steep learning curve and reliance on consultants and expert partners.

"I believe that the best way to do that was to invest in founders that had a sincere interest to do that through applying science and engineering to people's health." "Initially I used consultants. Initially I invested in, quote unquote branded deals and kind of rode other people's coattails to get in on these companies."

George Zachary shares his personal motivation for pivoting to biotech investment and the initial strategies he employed to navigate the complexities of the field.

• The role of a board member varies depending on when the investor joins the board.
• Early board members often have a more hands-on role in shaping the company's direction and addressing startup challenges.
• Later board members may provide more emotional support and operational guidance without intruding on established relationships.
• The "nose in, hands out" approach is advised for board members to avoid disrupting company operations.

"The most important lesson that I learned and what two of my venture mentors told me, who are now 20 or 30 years older than me, but still active in the venture business as advisors. They told me a simple phrase, nose in, hands out."

This quote summarizes the philosophy of being observant but not overly involved as a board member, emphasizing support over interference.

• Generational transition is a challenge for venture capital firms, requiring a balance between preserving the firm's legacy and embracing fresh perspectives.
• Successful transition involves deliberate efforts to integrate younger partners who can identify new trends and opportunities.
• Firms must decide whether to prioritize the continuation of the firm's name and values or to focus on short-term financial gains.

"At CRV, we have been very deliberate about doing this, and it involves bringing in newer, younger, fresher minds to do it, because we know that the newer, younger, fresher minds will see newer, younger, fresher ideas."

George Zachary explains the strategy at CRV for ensuring a smooth generational transition, which includes actively recruiting younger talent to stay relevant and innovative in the venture capital industry.

• The concept of death is necessary for the introduction of new ideas.
• Immortality is not favored, but extending lives for meaningful contribution is.
• This principle is applicable to venture capital firms.
• Partners who built the business initially should not feel obligated to continue indefinitely.
• The best approach is to bring in young, competent partners motivated by building great companies, not just financial gain.
• Young partners should be allowed to grow through a "sink or swim" approach.
• Guidance is necessary but should be minimal, such as the advice "nose in, hands out."
• Firms should include multiple generations and be open to the unique insights of younger members.

"I think the partners that help build the business early on, they shouldn't have to have a responsibility."

This quote emphasizes that the original partners of a venture firm should not be compelled to keep working if they no longer have the interest, suggesting the importance of allowing new generations to take over.

"The best way to do it is bring in competent, exciting young partners who have a commitment to building great companies and are excited about that, not just making money."

The quote highlights the importance of recruiting passionate and capable young partners who are dedicated to creating successful companies rather than being solely motivated by profit.

"You just have to build in multiple generations of ages and just have an open mind that younger people have awesome input that you don't."

This statement underscores the value of multi-generational teams in venture capital and the need to recognize and value the fresh perspectives that younger members can provide.

• George Zachary's background was lower middle class with no family wealth.
• His financial success in the year 2000 was anticlimactic, and the novelty of purchasing items quickly faded.
• The true value of wealth was found in being able to support family members in need.
• Accumulating more wealth shifted towards the desire to give it away.
• Wealth changed his relationships with people, as they began to treat him as a form of power.
• This led to unexpected negative aspects, such as people treating him differently and emerging financial expectations from extended family members.
• The change in relationships caused him to become cautious and self-isolate, preferring to socialize with people in a similar economic zone to avoid ulterior motives.

"Over my 25 years, no one has actually asked me about my relationship to money."

This quote introduces the unique and personal topic of how one's relationship with money evolves, which is rarely discussed openly, especially in the context of professional success.

"I was like, okay, why am I making more money? Well, in case I want to give it away."

George Zachary reveals a shift in his perspective on wealth, where the purpose of earning more money transitioned from personal use to the ability to help others.

"People no longer treated me as George Zachary, the person that I had been. They now started to treat me as some type of form of power."

This statement highlights the impact of wealth on personal identity and relationships, with wealth leading to a change in how others perceive and interact with a person.

• The "Foundation Trilogy" by Isaac Asimov is his favorite book series.
• The books were influential in his youth, inspiring him with themes of using science and technology to predict and prevent future disasters.
• The series had a significant impact on his life and coincidentally, Elon Musk also admired these books, which became a point of connection between them.

"What's your favorite book and why foundation trilogy."

George Zachary shares his favorite book series and explains the profound effect it had on him, shaping his interest in science and future thinking.

• George Zachary has many amusing stories about Elon Musk.
• His favorite memory involves a humorous misunderstanding about sending mice to Mars and whether they would eat cheese.

"I don't know that my favorite story with Elon is being at a cafe with him and him telling me he wanted to send mice to Mars, and me asking him if they're going to eat cheese, and he thinking that I was serious."

This anecdote reflects the lighter side of George Zachary's relationship with Elon Musk, showcasing their ability to share jokes and enjoy each other's company.

• Jim Clark, founder of several companies, was the most memorable board member George Zachary worked with.
• Clark's unconventional behavior in board meetings, such as speaking to people not physically present, left a lasting impression.

"The most memorable board member was someone named Jim Clark, who was the founder of Silicon Graphics, co-founder of Netscape with Mark Andreessen, and several other companies."

This quote introduces Jim Clark as the most memorable board member due to his significant contributions to the tech industry and unique personality.

• George Zachary does not seek a legacy but wishes to be remembered by the founders he backed as someone who helped them achieve their dreams.
• His focus is on the impact he has on the entrepreneurs he supports rather than on public recognition or historical remembrance.

"I'm just looking to be remembered by the founders that I backed as a person that helped them accomplish their dreams."

This quote conveys George Zachary's humble approach to his work as an investor, prioritizing the success and appreciation of the founders he assists over personal accolades.

• Glimpse, a bioengineering company in Boston, received his latest investment.
• The company's breakthrough platform for disease detection and the exceptional team, including Sangira Bhatia and CEO Carolyn Lowe, excited him.

"The most recent company that I backed is a company named Glimpse, a bioengineering company in Boston."

George Zachary shares his enthusiasm for his latest investment, Glimpse, highlighting the company's innovative technology and strong leadership team as reasons for his support.