20VC Greylock's David Sze on His Biggest Lessons Working with Mark Zuckerberg and Reid Hoffman, The Rise of PreEmptive Rounds, How To Think Through Price Discipline Today and How Truly Strong Venture Partnerships Function

In this episode of "20 VC," host Harry Stebbings interviews David Z, a general partner at Greylock, renowned for his investments in companies such as Facebook, LinkedIn, Roblox, and Discord. David shares insights from his journey, emphasizing the importance of perseverance, the evolution of venture capital from generalist to specialist, and the necessity for VCs to adapt to various stages of company growth. He highlights the critical role of founder relationships, advocating for a balance of support and challenge, and underscores the significance of team dynamics within both startups and VC firms. David also reflects on learning from failures and the value of humility and paranoia in a venture capitalist's career. Throughout the conversation, the theme of long-term commitment to both ventures and partnerships shines through, illustrating the depth and complexity of successful investing.

• David Sze is a General Partner at Greylock.
• He has led investments in Facebook, LinkedIn, Pandora, Discord, Roblox, and Medium.
• Before Greylock, David worked at Excite and in interactive entertainment at Electronic Arts and Crystal Dynamics.
• David is known for his expertise in the consumer landscape.
• He has been frequently named to the Forbes Midas List.

"I'm thrilled to welcome David Z, general partner at Graylock, where he's led some of the firm's most notable investments in the likes of Facebook, LinkedIn and Pandora."

This quote introduces David Sze and highlights his successful track record in venture capital, particularly with notable investments in major tech companies.

• David started in gaming with Electronic Arts and Crystal Dynamics.
• Transitioned to the Internet sector with Excite during the early days of search engines.
• Recognized the potential of search engines as a fundamental need on the Internet.
• Moved to venture capital after his experience with Excite, joining Greylock at the recommendation of a friend.

"It was this opportunity for me to sort of hit the ground floor on a new technology revolution and ended up joining a search engine called Excite that was one of the early search engines competing with Yahoo and others in those days."

David Sze explains his transition from gaming to the Internet sector, emphasizing the early opportunity he saw in search engines like Excite.

• David's transition from startups to venture capital was influenced by his experience and the Internet boom.
• Initially, he was encouraged to focus on enterprise software at Greylock.
• David realized his passion was in consumer technology, not enterprise.
• He almost left Greylock to return to a consumer company but ultimately stayed to pitch the long-term opportunity of consumer tech to the firm.

"I'm going to go join a consumer company because I really rotate around consumer, whether that's venture or operating. I don't rotate around venture to go to say enterprise is what I've learned."

David Sze expresses his passion for consumer technology and his decision to focus on this sector within venture capital, despite the industry's initial skepticism.

• David advocated for specialization in venture capital, arguing for domain expertise and freedom to invest across stages.
• He challenged the traditional venture capital model of strict investment stages and not following other top-tier firms.
• David's approach was considered controversial, especially with significant investments in companies like Facebook at high valuations.

"I was pushing to say, we need to have people that have expertise in a domain. And as a result, if you're going to narrow down your domain focus, we need to give them the freedom to invest up and down the stack within that domain."

David Sze discusses his push for domain expertise and flexibility in investment stages, which was a novel approach at the time and led to successful outcomes for Greylock.

• David believes in price discipline but also in the potential for massive outcomes.
• He emphasizes the importance of identifying businesses with winner-takes-most potential and strong leadership teams.
• His experience with successful investments like Facebook has shaped his approach to price sensitivity.

"Does this show the potential to be a winner takes most or winner takes all kind of business, if that's the case, and you think you have the right team in place as well, which is the other critical aspect of that."

In this quote, David Sze outlines his investment philosophy, focusing on the potential for a business to dominate its market and the significance of having the right leadership team in place.

• The venture capital landscape has evolved to allow investments at different points along the technological stack, leading to potentially significant returns.
• The traditional investment model has been challenged by new opportunities that exist beyond the initial stages typically associated with venture capital.

"You can invest at different points along the stack than we used to think and have great returns."

The quote highlights a shift in venture capital investment strategies, where there are now opportunities for substantial returns at various stages of a company's development, not just the early ones.

• David Sze reflects on the importance of being founder-friendly and the necessity of sometimes employing tough love to support founders effectively.
• Great leaders, such as Reed Hastings, Mark Zuckerberg, and David Baszucki, exhibit a strong partnership dynamic, a hunger for learning, and an ability to adapt and evolve.
• These leaders have a clear sense of purpose and focus, combined with the capacity for continuous learning and self-improvement.
• The ability to evolve from a small-scale project origin to leading a significant public company is crucial for long-term success.

"Reed was a wonderful thought partner...Mark was an incredible learner...Dave had an incredible sense of purpose and focus."

The quote encapsulates the key leadership traits observed in successful founders: the ability to engage in collaborative thought, the eagerness to learn from diverse sources, and a steadfast sense of purpose and focus.

• The current fast-paced funding environment poses challenges to developing deep, trusting relationships with founders.
• Despite time constraints, venture capitalists can build meaningful relationships by leveraging their operational experience and demonstrating how they can support founders.
• Trust and reputation are fundamental to forming strong relationships with founders, and due diligence by founders can reinforce this trust.

"The amount of relationship building we have is cut to the core bone at this point, I think, and it is really hard."

This quote acknowledges the difficulties faced by venture capitalists in building relationships with founders due to the accelerated pace of deal-making in the current climate.

• Trust is central to the relationship between venture capitalists and founders.
• Reputation serves as a critical factor in establishing trust, and founders are encouraged to conduct thorough background checks on potential venture partners.
• The venture capital industry should emphasize the long-term nature of founder-VC relationships, akin to a marriage rather than a fleeting transaction.

"It is always in our favor when they do their checking on us... These are long term relationships."

David Sze stresses the importance of founders performing due diligence on venture capitalists to ensure a trustworthy and lasting partnership.

• The rise of preemptive rounds is seen as a natural but potentially hazardous aspect of the current investment climate.
• There is a risk of significant losses when market conditions change, and such preemptive investment strategies may not be sustainable in the long term.

"I think it's very dangerous and I think there's going to be people that get extremely burned when the music stops."

The quote expresses concern over the risks associated with preemptive investment rounds, suggesting that the trend may lead to significant losses when market dynamics shift.

• A venture firm's success relies on a balance between individual ownership and collective decision-making.
• Partners are expected to advocate for their deals while remaining open to constructive feedback from the team.
• Trust within the partnership is strengthened when partners demonstrate accountability and thoughtful consideration of feedback.

"It's the individual that has to own it... There is this dialect that needs to go on that's a real balance."

David Sze outlines the balance required in venture firms between individual responsibility for deals and the collective input of the partnership.

• Greylock has fostered a culture where partners are empowered to speak their minds and take ownership of their decisions.
• The firm values the collective success of the team and the longevity of the institution over individual triumphs.
• There is an emphasis on nurturing future leaders within the firm, ensuring the continued success of the venture firm through generational transitions.

"We empower every partner to say what they mean, do what they say, and to own what they decide to do."

This quote describes the culture at Greylock, where partners are encouraged to be forthright and responsible for their actions, contributing to the firm's collaborative and supportive environment.

• Experienced venture capitalists like David Sze recognize the influence of their words in board meetings and strive to communicate in a measured and thoughtful manner.
• The goal is to ensure that ideas are considered on their merits rather than being accepted solely based on the speaker's reputation or past successes.

"The more confident you are, the more experienced you are, the less you should say and the more quiet you should say it."

David Sze advises that with greater experience comes the responsibility to speak less and with greater consideration, to allow for a more balanced and reflective decision-making process in board environments.

• Effective communication can be achieved by being calm and concise.
• There is power in saying things less and quietly, which can be more impactful than being loud and forceful.
• This approach can be seen as Zen-like, where effectiveness comes from a different manner than one's natural instinct.

When you know you're right, instead of sort of like being a blunt force object and saying it louder and trying to hit everyone with it, say it less, say it quietly, because there's a power to that that's built.

This quote emphasizes the effectiveness of subdued communication over aggressive insistence, suggesting that a quieter approach can carry more weight and influence.

• Initially, there may be a tendency to control too much and impose one's will.
• Over time, it's important to learn to empower and educate founders rather than control.
• Relationships and trust are critical for being heard, whether supporting or needing to assert oneself.
• There's a balance between supporting and being assertive, which is informed by the strength of the relationship with founders.

The most powerful thing I can do is to both empower, support, encourage, also help educate with perspectives my founders, rather than trying to make something happen myself and impose it.

David Sze reflects on the evolution of his board membership style, highlighting the shift from control to empowerment and the importance of educating and supporting founders.

• Senior partners should step back to allow new partners to succeed.
• The voice of senior partners can be overpowering, so they must use it carefully.
• Greylock's history includes a symbolic rejection of a hierarchical CEO model to promote partnership equality.
• Success for senior partners is defined by making themselves obsolete and ensuring the success of the next generation.

Today the partners who are senior feel like an incredible responsibility and institution to make the younger partner successful.

David Sze discusses the generational transition at Greylock, emphasizing the responsibility of senior partners to foster the success of younger partners and the institutional culture against centralized power.

• Failure can come from not balancing team dynamics and individualism, and not being open to learning.
• Young partners must learn to ask questions, listen, and assert themselves while taking risks.
• Being overly analytical without the ability to make decisive calls can be a failure point.
• Success involves making informed bets amidst uncertainty and competition.

There's so many ways you can fail and so many ways you can succeed in adventure.

David Sze acknowledges the complexity of success and failure in venture capital, suggesting that there is no single path to success or failure.

• The decision-making process often starts with an emotional connection to the idea or founder.
• Analytical work follows the initial emotional response, but numbers can be manipulated to support any conclusion.
• Ultimately, the decision comes back to a heart-based judgment after thorough analysis.
• In VC, control is limited, but choosing the right journeys and people to work with is critical.

I tend to start with the heart, which is I have to sort of fall in love with the idea or fall in love with the founder or some combination of that and what it could be.

David Sze describes his personal investment decision process, emphasizing the importance of emotional engagement with the idea or founder, followed by rigorous analysis, and finally returning to an emotional assessment to make the final decision.

• Being "founder friendly" doesn't mean blindly supporting founders but actively helping them improve.
• It's important to challenge founders constructively and supportively.
• Failures often become apparent in retrospect, emphasizing the importance of experience in learning from them.

What I learned is that's not always the case that you need to help founders be better.

David Sze shares insights from unsuccessful investments, particularly the nuanced understanding of what it means to be founder friendly, which involves a balance between support and constructive challenge.

• Flexibility in investment strategy is key, without being locked into a single model.
• The focus should be on the potential journey and the people involved, regardless of the stage of investment.
• Companies can pivot significantly, so it's important to trust in the entrepreneurs' vision and adaptability.

Is it journey I want to go on, and is it folks that I want to go on that journey with?

David Sze explains his approach to investing across various stages, highlighting the importance of the entrepreneurial journey and the people involved over the specific stage of investment.

• The ability to envision potential and adapt is crucial for success in various stages of companies.
• Recognizing exciting potential is a key factor, despite the inherent risks involved.
• Flexibility allows for jumping into opportunities at different stages, from early to later firms.

"If you have that kind of vision and flexibility to figure out how to make something great happen, then you can't start anywhere. But if you have that, you can jump in in all kinds of places."

This quote emphasizes the importance of vision and flexibility in seizing opportunities across different stages of a company's growth.

• Success in investment requires humility and a constant sense of paranoia due to the ever-changing nature of the business.
• Acknowledging the high probability of failure in investments is essential.
• Investors must be able to handle uncertainty and maintain a balance between following trends and recognizing their limitations.

"I think to be good at this business, you need to be pretty humble, ironically. And you always need to be paranoid."

David Sze expresses the need for humility and vigilance in the investment business, given its unpredictable nature.

• FOMO (Fear of Missing Out) is prevalent in the investment industry.
• Investors keep track of missed opportunities, which is a critical aspect of their experience.
• Reflecting on both successes and missed deals helps maintain humility and perspective.

"Oh, yes. This business is all about FOMO."

David Sze acknowledges that FOMO is an integral part of the investment business, driving investors to reflect on both their successes and the opportunities they missed.

• Roblox's success was anticipated based on its unique gaming model, economic and creator flywheels, and community/social dynamics.
• Potential downsides included the challenge of maintaining a balanced economy and the platform's ability to age up with its user base.
• Understanding and overcoming potential risks is crucial for successful investments.

"The biggest thing we thought the reason to succeed was that it was providing a different model of what games could be and what community and social can be."

This quote explains the rationale behind the belief in Roblox's potential for success due to its innovative approach to gaming and community engagement.

• Learning from experienced board members, like Peter Chernon, can be immensely valuable.
• Effective communication, strategic thinking, and the ability to work with diverse personalities are key takeaways from mentorship.

"Peter Chernon was someone that I really learned a ton from in a very condensed period of time in some ups and downs."

David Sze highlights the valuable lessons learned from Peter Chernon, emphasizing the impact of mentorship and experience in the boardroom.

• Investing in sleep health is important, and there are various tools to assist with this.
• Using multiple products, such as the Oura ring, Sleep Timer, and Auto Sleep, can provide insights into sleep patterns.
• Cross-referencing data from different sources helps in understanding and improving sleep quality.

"I have an aura ring which I use and look at. I use a product called Sleep Timer every night and I use another product called auto Sleep."

David Sze shares his personal sleep tooling kit, underlining the significance of monitoring and improving sleep for better performance and well-being.

• Pursuing relationships, as with Reed Hoffman, can lead to significant investment opportunities and long-term partnerships.
• Being proactive and building rapport in settings such as industry conferences can be the foundation for successful collaborations.

"I just tracked him down, and we sat the back of the bus each time on every stop on this tour through China, and we just mind melded."

The quote describes how David Sze actively pursued a relationship with Reed Hoffman, which eventually led to a fruitful investment in LinkedIn.

• Perseverance and focus are crucial for long-term success, as demonstrated by Roblox's founder, Dave Baszucki.
• A company's success is often a collective effort, with various team members contributing in different capacities.
• Recognizing the importance of each team member, from the CEO to front desk staff, underscores the significance of culture and teamwork.

"I love the underdog story. I love the 17 year success that counters the idea that this is all really easy and fast."

This quote reflects David Sze's admiration for the perseverance and long-term vision that contributed to Roblox's success, challenging the misconception that success comes quickly and easily.