20VC How I Lost a $125M Deal with Yahoo by Being Too Honest, The M&A Meeting with Steve Jobs That Did Not Go Well and How U2's Bono Saved The Day For One Tech Startup with Ali Partovi, CEO @ Neo



In this episode of 20 VC, Harry Stebbings interviews Ali Partovi, CEO of Neo, a mentorship community and VC fund that recently announced a new $150 million fund. Partovi, a seasoned angel investor with stakes in tech giants like Dropbox, Uber, Airbnb, and Facebook, shares his journey from founding Link Exchange and selling it to Microsoft for $265 million to creating iLike, which was later acquired by MySpace. He emphasizes the importance of betting on young talent and recounts a pivotal lesson learned about valuing people over experience from his time working with Alfred Lin. Partovi also discusses the critical role of hiring in a startup's success and the dangers of deceit in negotiations, drawing from his personal experiences with industry leaders like Steve Jobs and Jimmy Iovine. He advocates for founders to focus on one thing and go all-in, rather than spreading themselves too thin or diversifying prematurely. The conversation also touches on the relationship between founders and VCs, the value of founders angel investing, and the potential of startups like Coprocure in disrupting traditional markets.

Summary Notes

Introduction to Ali Partovi and Neo

  • Ali Partovi is the CEO of Neo, a mentorship community and communal VC fund.
  • Neo recently announced a new $150 million fund.
  • As an angel investor, Ali has invested in companies like Dropbox, Uber, Airbnb, and Facebook.
  • Ali founded two companies: Link Exchange (sold to Microsoft) and I like (acquired by Myspace).
  • Thanks were given to Tariq at Kalshi and Alfred Lynn at Sequoia for their question suggestions.

"So with that, I'm thrilled to welcome Ali Potovi, CEO at Neo, a mentorship, community and communal vc fund that announced their new $150,000,000 fund late last year on the back of early hits from fun one, including Vanta and Calsheet."

This quote introduces Ali Partovi and his current role at Neo, highlighting the recent announcement of a substantial new fund and previous successful investments.

Importance of Hiring and Betting on Young Talent

  • Ali started Neo as a mentorship community to help promising college students become tech leaders.
  • He emphasizes the importance of hiring the right people, especially the first few hires, as they set the foundation for the company's future.
  • Ali shares a personal anecdote about hiring a young Alfred Lynn, who later became a crucial part of his company's success.
  • Ali learned to prioritize talent and potential over experience when it comes to hiring.

"I realized that the people we hired made the difference between success and failure, and the first five or ten are most important because they hire the next 50 or 100."

Ali Partovi explains that the initial hires in a company are pivotal as they influence the future growth and hiring, thus impacting the company's trajectory.

Hiring Philosophy: Quality Over Quantity

  • Ali agrees with the notion that it's better to wait for an amazing hire than to settle for a decent one.
  • He acknowledges the challenges and sacrifices involved in holding out for the right candidate.
  • Ali shares insights from his advisory experience with Dropbox, emphasizing the importance of maintaining a high hiring bar.

"And so, of course, there's a point at which you might need to make a compromise. But I've always found that if you're interviewing someone and you're like they're not quite right, you'll soon find they were actually terrible."

Ali Partovi suggests that it's better to wait for the perfect hire, as settling for someone who isn't quite right often leads to discovering more significant flaws later on.

Impact of Dropbox Experience on Hiring Mindset

  • Ali's experiences with Dropbox reinforced his belief in the importance of hiring the best people.
  • He advised Dropbox to build an intern program and engage in innovative hiring practices.
  • Ali highlights how Dropbox's intern program helped legitimize the company in the eyes of interns' parents.

"Dropbox did a lot of innovation in terms of their intern program. For example, they had a parents weekend where they would invite the parents of the interns to come just so that they would feel comfortable."

Ali Partovi describes Dropbox's creative approach to hiring interns, which included making the company appealing to the parents of potential hires.

VC Role in Hiring for Portfolio Companies

  • Ali believes it's part of his job to assist portfolio companies with hiring.
  • He acknowledges that most VCs may not excel at hiring support.
  • Ali aims to augment founders' hiring practices rather than act as a crutch.
  • The goal is for founders to independently develop strong hiring capabilities.

"So I am happy to be leaned on for that. But I would agree, at the same time, most vcs are not good at that. And regardless, I don't want anyone, including myself, to be a crutch."

Ali Partovi sees his role as a mentor and investor to support and teach founders hiring best practices, but he also agrees that reliance on VCs for hiring is not ideal, and founders should become proficient in hiring independently.

Talent Detection in Engineering-First World

  • Harry Stebbings discusses the challenge of identifying talent, especially in less charismatic individuals such as engineers.
  • Ali Partovi shares a formative experience with Mike Moritz from Sequoia Capital, who demonstrated a keen ability to evaluate candidates quickly and accurately.
  • Ali aspires to acquire the skill of evaluating people, which he views as critical in his role in supporting portfolio companies.

"Actually, I'll say one of the things that for me was a truly formative point in my career was when I was a 24 year old founder... And Mike would interview the candidate, and then we would debrief afterwards. And I learned so much from Mike. He would eviscerate these candidates where I'd be like, yeah, they seemed good. And he'd be like, absolutely not."

The quote highlights Ali Partovi's learning experience with Mike Moritz, emphasizing the importance and difficulty of evaluating talent effectively.

The Art of Closing Talent

  • Ali Partovi emphasizes the role of VCs in not only sourcing but also evaluating and helping to close candidates.
  • He shares his active involvement in the hiring process of his portfolio companies, often being a decisive factor in convincing candidates to join startups.

"In almost all my portfolio companies, if I didn't source their early recruits, I certainly helped close them. At companies like Vanta Kalshi copracure, I think not a single person they hired was without a phone call, at least from me, to help convince them to join the company in the first ten or so people they hired."

Ali Partovi illustrates his hands-on approach to recruitment, where he personally assists in the hiring process, showcasing the value-add a VC can provide beyond capital.

The ViaWeb Story and the $125 Million Missed Opportunity

  • Ali Partovi recounts the story of how he lost a potential $125 million acquisition deal with Yahoo by being too honest about the talent at ViaWeb.
  • He reflects on the importance of timing and patience in business discussions, particularly when major deals are involved.

"And then on the eve of the acquisition, I had drinks with, you know, in my mind, this deal is done... Via web's people are incredible... And a couple days later, we learned that Yahoo was no longer acquiring us."

The quote reveals a pivotal moment where Ali's candidness during an informal meeting may have influenced Yahoo's decision not to proceed with the acquisition.

Lessons on Impatience and Honesty in Business

  • Ali Partovi identifies impatience as a common theme in his business mistakes and suggests that waiting to have sensitive discussions might be more prudent.
  • Despite the missed opportunity, he remains firm on the value of recognizing and speaking highly of exceptional talent.

"But I think one of the things as a younger, both as a founder and probably as an investor, has been one of my flaws has been impatience."

This quote underscores the importance of patience in business negotiations and the potential consequences of acting prematurely.

Dealing with FOMO and Regret as an Investor

  • Ali Partovi discusses how FOMO (Fear of Missing Out) can lead to both good decisions and mistakes in investing.
  • He highlights the importance of having a personal compass and confidence in the value proposition of his firm, Neo, to overcome the anxiety of losing deals.

"Because I have that confidence, I don't tend to get as worried about losing deals, and I certainly do lose deals, but I often feel like, you know, what? If they didn't see the value in what we offer, maybe it's not that big a loss to us either."

Ali Partovi's quote reflects his belief in the unique value Neo brings to startups and his acceptance of losing deals as part of the investment process.

The Apple Acquisition Story of 2008

  • Ali Partovi narrates a traumatic experience from 2008 involving a potential acquisition by Apple.
  • He discusses the struggles of his startup and the internal conflict between showcasing strengths and hiding weaknesses.

"And so after a year of relationship building, Apple finally expressed interest in acquiring us... It went extremely well. He said, I like you guys. I like what you've built. I like how you are arguing back."

The quote captures the high point of discussions with Apple and Steve Jobs' positive feedback, setting the stage for what seemed like a promising acquisition.

Negotiation and Valuation

  • Ali Partovi shared a personal anecdote about a negotiation with Steve Jobs, highlighting the importance of posture and honesty in valuation discussions.
  • Ali initially suggested a valuation three times higher than what Steve Jobs offered, which was the same as their pre-launch valuation.
  • Changing his posture to assert certainty about the higher valuation was perceived as dishonest by Steve Jobs, leading to a breakdown in negotiations.

"Steve, I think we're worth three times that. And then I made the ultimate mistake, which is I changed my posture. And I said, Steve, actually, I know we're worth three times that."

The quote demonstrates the critical moment when Ali Partovi tried to assert a higher valuation, which was met with skepticism by Steve Jobs. The change in posture indicated a lack of sincerity, which was detrimental to the negotiation.

Leverage in Negotiations

  • Ali Partovi discusses the difference between showing strength and being misleading in negotiations.
  • He advises that founders should negotiate with confidence but without implying false information.
  • Ali emphasizes the importance of humility and maintaining good relationships beyond a single transaction.

"You can show strength without implying anything that's not true, especially if you're negotiating with somebody who has more experience."

This quote encapsulates Ali's lesson from his negotiation experience, emphasizing the importance of honesty and strength without resorting to deception.

Hubris in Venture Capital

  • Ali Partovi reflects on his earlier attitude and the role of humility in venture capital.
  • He contrasts the hubris he sees in many VCs with his approach of seeking founders who may be smarter than him.
  • Ali's goal is to support exceptional founders rather than proving his own intelligence.

"I'm most comfortable when I'm not the smartest person in the room. And my goal is really to figure out if the other person is smarter than I am."

Ali explains his investment philosophy, focusing on identifying and supporting potentially great founders rather than dominating the conversation with his own ideas.

Missed Investment Opportunities

  • Ali Partovi shares stories of missed investment opportunities with brilliant individuals like Max Levchin and Craig Silverstein.
  • He reflects on his mindset at the time and how it led to him overlooking the potential of PayPal and Google.
  • Ali also missed an early investment in Airbnb but later corrected his mistake by investing at a higher valuation.

"Some of the seminal ones I would say, were where I truly knew the person and I knew they are a genius."

Ali acknowledges his error in judgment, admitting that he underestimated the potential of individuals he knew were exceptionally talented.

Negotiation with the Music Industry

  • Ali Partovi recounts a challenging negotiation with Jimmy Iovine and Universal Music regarding his music industry startup.
  • He discusses the conflict between tech companies and the music industry, as well as between record labels and their artists.
  • Ali reflects on the decision to compromise during the negotiation, which allowed his company to survive but at the cost of not fully standing their ground.

"I think success in tech requires maintaining courage, no matter how terrified you are."

Ali shares his belief that success in the tech industry often requires boldness and the willingness to face risks head-on, even when the odds seem against you.

Challenge for Multi-Stage Firms Investing in Later Rounds

  • Seed investors become risk-sensitive when a tier-one, multi-stage firm invests in later rounds.
  • There's a tendency to protect the investment rather than seeking further upside.
  • This protective stance can lead to missed opportunities for breakout success.

"When they invest at the b or the c, say your seed investors in that company suddenly turn very risk sensitive because they're like, this is our winner. Sequoia have done the b and the c. This is our winner. Just like, protect it, protect it."

The quote highlights the cautious approach seed investors adopt after a prominent firm like Sequoia invests in subsequent rounds, focusing on safeguarding the investment rather than maximizing potential returns.

Overcoming Fear in Business

  • Fear is a common emotion in the business world, affecting investment decisions and the willingness to take risks.
  • It's essential to differentiate between actual danger and the fear of uncertain outcomes.
  • Embracing fear can lead to choosing the best path, often the most terrifying one.

"One of the hardest things in business is overcoming fear."

This quote underscores that fear is a significant barrier in business, and overcoming it is crucial for success.

Balancing Ambition with Focus

  • Founders should not diversify too early and should focus on one core product or idea.
  • CEOs should resist the urge to spread efforts thin due to fear or creativity.
  • Taking audacious risks is part of being a founder, but diversification should be avoided until the right time.

"Don't spread wide, but pick the thing you're going to do and go all in and bet big on it."

The quote advises founders to concentrate their efforts on a single venture or idea and commit fully to it, rather than diluting their focus across multiple initiatives.

Founders Raising Funds on the Side

  • Founders should focus on their primary venture, especially when they have taken investor money.
  • Angel investing as a founder is acceptable, but running a fund on the side is not recommended.
  • Founders and VCs are part of the same ecosystem with a shared goal of building successful companies.

"I'm deeply skeptical as somebody who is CEO of a startup being able to also run anything else."

This quote expresses skepticism about a startup CEO's ability to manage a separate fund effectively while running their company.

Quickfire Round: Personal Insights and Preferences

  • Ali Partovi values the book "Sapiens" for its insights.
  • His strengths lie in inspiring others to take risks and dream bigger, while his weaknesses include timeliness and delegation.
  • Ali wishes to change the adversarial attitude between founders and VCs in the venture world.
  • He believes in letting existing investors participate in funding rounds but emphasizes fair market valuation.
  • Coprocure is a B2B company he is excited about due to its potential and innovative approach to government procurement.

"My biggest strength is, well, helping recruit and inspiring others to take more risk, inspiring others to dream bigger, to reach for higher goals."

This quote reflects on Ali's ability to motivate and encourage others to aim high and embrace risk in their entrepreneurial endeavors.

Sponsorship and Product Endorsements

  • Squarespace is praised for its mobile optimization, email campaigns, and SEO tools.
  • Mozart Data is recommended for setting up a data stack quickly without needing data engineers.
  • AngelList is highlighted for simplifying fund management and offering a new product for founders to streamline incorporation and fundraising.

"Squarespace is the all in one platform to build a beautiful online presence and run your business."

The quote promotes Squarespace as a comprehensive solution for creating and managing an online business presence.

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