Investing with intuition - David Zhou: On Deck Angels

Transcript

 Rishad Usmani:

You're listening to Learning with Rishad. My name is Rishad Usmani. I'm a physician, angel, investor, and founder of one failed Startup. On this podcast, I talk about healthcare, investing life and everything in between. Today's guest is David Zhou from OnDeck Angels. He has an inquisitive, curious, and intelligent.

We talk about his childhood market risk, what makes the best VC's deal flowing decision making? I hope you guys enjoy this conversation as much as I did. Hi David. Thanks so much for being here today. To get started, let's talk about your childhood. I believe our childhood shapes us to an extent, whether we like it or not.

Generally, there are things we learn from our childhood that help us, and there are some things we have to unlearn from our childhood to be successful. Talk to me about your childhood, and if you could frame it in the way of what are some things you've carried and what are some things you've had to let go of?

David Zhou:

That's a great question. I actually, it's funny because I was recently thinking about this question in the scope of a blog post. Uh, so this is a very prescient question. I forget who says this, um, but I wanna say someone at Benchmark or someone at Sequoia said this and I, I, I, forgive me for the attribution, I think your listeners can probably like, follow up on that.

But, um, effectively the quote is, in life, when you're growing in life, there are, you either run away from your past or you embrace your past. Right? There're either, like, you know, where your trajectory, where you're going is either a product of you escaping, um, a past or, or running towards it. , I'm not saying like, it's, it's not polarizing, right?

It's not like you can only do one or the other. There are different emotions. Like sometimes, like there's some things that my parents did really well and I'm like, I just want to do that for like, I don't have children right now, but like, I wanna do that for my children in the future. There are other things in terms of upbringing that I'm like, you know, I, I desire something different.

Right? And they came with cultural values that obviously me being born in the us like it was a different set of cultural values. Um, one of the. and there are like many things on top of that, right? But one of the things is, so my dad's like a serial entrepreneur. Um, so he kinda like grew up bread and butter.

He was like, you know what, I, I love building businesses. He built into manufacturing the logistical and supply chain space, which was to me, like as a kid, like very unsexy. But he'd bring me on these business trips and he'd teach me the, the, the, the tricks and the, the ropes and everything else. and I really hated it.

Like, like as a, as a six or seven and all the way this, uh, like, like throughout my entire life, right? I just like really disliked it. And in high school I almost made it my vendetta that I was gonna pick any career except for entrepreneurship. Um, and so like, you know, a along the way, like, um, over like in, in grade school became a competitive swimmer.

Really enjoyed that, became a competitive artist and all. Things, um, that were like very different from, um, what my, what my dad wanted me to do. He kinda wanted me to follow in his footsteps and all that, which is funny where I am now because obviously, you know the punchline already as if for everyone who's listening to this, but I really want to escape this, but I really love competition, right?

I, I love the fact that. I competed with others friendly competition where we'd all grow better in the process because we all had goals that were moving. And it only got better. Like if I, if my competitor was like, you know, I won against him or her today, and then the next day, like, you know, or next week or next month, they beat me.

It's like, this is drive to prove yourself. Right? And we always like loved each other. It's the same truth for swimming. And I, I saw some regular suspects in, in the art circuits as well, where I was. I, I, I have so much respect for what they do, and I want it to be better than them. Right? And there's so much of that.

Um, so in a, in a way, I was groomed to have ambitions and skillsets that would've lent well to the world of entrepreneurship and future, like in, in a venture world as well. That's that. It, it, now, it's funny because now that I start investing, I, I say I'm allergic to competition. Um, so that's the past in a bit.

I'm, I'm kind of running away from. . But, um, to answer your question, as I got into college and ended up getting into entrepreneurship and all that kind of stuff, um, what really happened was I stumbled across that. Like, I, I, in my mind, I was like, I'm not gonna take any entrepreneurship classes. I'm not gonna take any business classes.

Um, and eventually I ended up taking it spoiler alert. Um, but in the beginning it was, I'm just gonna do cool things with cool people, and I will see where that lands. and in some, it effectively landed me in, like I went to school in Berkeley. So whether I liked it or not, this was a school designed for entrepreneurship, so to speak.

Um, and so by osmosis, I eventually fell into that world, but it was initial, like running away from that. That led me to that. On the flip side, I also mentioned now that I'm allergic to competition, which I realized early on in my college days that even though I was really good in some things, right, like really, really good, I say.

Decile, maybe even top percentile on some things. But in the world of venture, you really not only have to be top percent, like you'd be like top 0.01%. And there were some things I just knew because I've seen people who are better than me that I knew I was not gonna be like the top one in the world. I wouldn't be, I wouldn't be the Albert Einstein or the Stephen Hawking of the world effectively.

Right. And. . And so I, like early on, one of my mentors in, in my life told me there, in your journey, there's two risks you can take. Um, and this might be a more long-winded version of, of your, uh, the question you asked, right? You can either take market risk or you can take execution risk. And I think most people when they pursue careers, they pursue execution risk, right?

People go into consulting and banking and all these kind of things. There are people who can do it better than you, but. , you're at a point where you want, like you're, you're hustling, you wanna do it better than them, but it's hard to beat someone who has like 20 years in the industry and all that kind of stuff.

That said, as a young person, which is true for like the crypto markets right now, or the generative AI markets and these founders that are coming outta that, it's so much easier to bet on market risk because you are at an equal playing field versus everyone else in the industry. Um, and so why I say I'm allergic to competition and you know, Strongly informs my investment thesis is I, I love people who are building in non-obvious unsexy things that are just like, you know, underestimated, right?

And, um, and I think that that lends itself well to, to being different, um, in, in the long run, the like next decade. And I think it's so much easier to be different or tell, share how you are different than it is to say that you are better. Um, so I'm gonna pause there, but long-winded answer to your.

Rishad Usmani:

Thanks for that answer.

I have a million questions as always about art swimming. Why Berkeley? How did you know that you would not be the 0.01% vc? Before we get into all of those, when you say market risk, does that mean that we should pick markets that are growing or did I, am I misunderstanding? So

David Zhou:

there are two ways you can pick.

Um, and this is something I often advise founders in terms of like go-to-market channels and all that as well. You can pick up and coming, uh, channels, markets, so to speak, um, that are growing but are smaller in, in a magnitude of things. Um, and or you can pick markets that are legacy, super big, but underestimated.

Um, and so there are two ways to go about that, right? And it's, it's, it, it changes over time. Like today's market that's like what's up and coming versus like legacy and, and antiquated is different from if you were to ask me that same question 2, 3, 4, 5 years from now. Um, and so that's how I think about it, right?

Um, I, I'm also of the belief where. Like, you know, if things like things are overhyped, it's probably not a good time to be investing in the market, so to speak, um, or like in, in that specific sector. Um, but I am bullish when people are bearish and bearish when people are bullish, right. Um, so I currently, there's certain trends I think are overhyped.

I'm not saying that they don't have any use cases, right. Um, but I just like shied away from a lot of investments like, you know, in 2017 and all from the crypto side of things or like 20 20, 20 21. Um, but. . Um, I'm looking more into like the different use cases, thehe applications that connect, not not just web two to web three, but web two to web 2.5 and maybe 2.5 to three.

Right. Um, and right now we see a lot of hyper on generative ai. And I love, I I've been using chat, g p T and Dolly, like no one's business. Right. But, um, I do think a lot of applications are spinning up right now is, is forcing a solution on a problem rather than finding a problem and then building a solution based on that problem.

Rishad Usmani:

The value of creative work with ChatGPT. It's a good segway into newsletters is interesting. ,

David Zhou:

I just preempted your question for you, . Yeah.

Rishad Usmani:

Um, the, the question I wanted to ask is, what markets do you see as growing over the next few years with AI becoming a commodity? Do you agree with that statement? AI is a commodity now, and if so, yeah.

What markets are you betting on?

David Zhou:

Yeah. . It's really interesting. Um, I've always been a fan of communications and the linguistics and the English lang or just language in general. Um, that's, that I am ill-equipped to speak a million different languages, but I, I've always been fascinated by them. I've been fascinated by friends and, and people who could speak multiple languages.

Um, and there was a tweet I saw on, on Twitter, I forget who said this, um, and I'm sure you can probably link it in the show notes somewhere. Um, but they said the, the new hot like coding language is. The hottest coding language is English. Um, and this is a couple days ago, at least as of when we're recording this.

Um, so I'm sure you can find it somewhere, but I think that's really true, right? Um, going to the point of AI becoming a commodity in the past decade, in the past two decades, we've seen so much of. Engineering talent, like, you know, there was more demand for engineers than there were for any other position.

Right. And the main reason for that is, you know, from the two thousands to 2008 and all that, it was really hard to build a website. It was really hard to build infrastructure. It was really hard to build a server, a cloud, all these kind of things, right? And so that's why there was a huge demand for, for engineers out there.

Um, and rightly so, in. Incoming decade where we have so much a plethora of like AI tools out there, and some are more hype than others, but that we have strong backbones, whether it's open AI or uh, Google DeepMind or Mid Journey or, you know, philanthropic recently raised like, uh, I think on a 5 billion valuation as well.

Um, that there's so many of these tools that are underlying out there. people don't need to know how to code anymore. Peop what people need to know is they need to know how to train models. They need to put in the right inputs for that. And so I think curation of information and, you know, is, is so much more important.

And because of that, I actually think data science or data analytics is actually gonna be like the next hottest job for the next like decade or so rather than, um, you. engineering per se. Um, and because of that, industries that are, have data that is siloed in different corners of the world or on offline methods are going to be really hot over the next few years because there's going to be an urge to curate and start, uh, like amalgamating a lot of this data in order.

Provide better solutions. Um, and there are tons of industries that kind of cover those bases. You can think of healthcare, you can think of like, you know, the supply chain industry, you can think of like, you know, um, govtech is also something that is, it, it, it would be interesting as well. Um, that said, I, as I mentioned, I think in our pre-chat, like I, I spend most of my time in the consumer space and there are, um, there are certain things and like, you know, one of my, a friend, he, he.

I don't even know if I can mention his name without his permission, but he runs this company that's, that's AI before, like this generative AI came to be. And one of the cool things is he, emotions and curiosity is still a common theme. So like how I think about it in the consumer space is really what is the.

what is the Maslow's hierarchy of needs? Right? Starting from physiological needs all the way to like self-actualization and in, in, in a boom market, everyone moves towards like the top of it, right? Everyone feels a little bit more wealthy. Everyone's like, I can do great, great things. I'm gonna think about being, get, getting like a million subscribers on YouTube, or whatever it is, right?

And so everyone moves towards this like self-actualization side of things. But in down market, which is where we are right now, everyone feels a little poor. Their assets have really fallen. So they're like, they, they move lower on the Maslow's hierarchy of needs. And in terms of markets, at least in the consumer space, that I'm excited about.

are as we move up to the lower rungs of, of the Maslow's hierarchy of needs, at least for, for, for, for a lot of the world. Um, how can we provide solutions for, for where their needs are at? That is

Rishad Usmani:

a perfect answer, I would say. David, let's go back to you being an artist. Talk to me about what is your form of art and is the future at that point that you will be an artist?

So I, I don't think we talked about this, but I paint abstract acrylic on canvas. My relationship with art is very tenuous. It's almost like an addiction. When I do it, the world doesn't exist and I don't, I don't enjoy the process of painting. It's almost like I have to do it when I get the urge. Is that something you feel as well about art?

And just tell me more about your journey as an artist and how you saw that progressing, uh, when you were, uh, full into it.

David Zhou:

Yeah. Um, so my journey into art once again. One of the things I'll, I'll like preface by saying before I talk about the art piece, well, I'll preface by saying, um, there are like two kinds of founders out there.

Um, there are folks who are passionate and there are folks who are obsessed. Um, and I think oftentimes, like people talk a lot about founder passion and like passion's a good proxy for grit and all that. Right? But in my opinion, and I think this is echoed and actually, uh, like heard this from. I think calls it desire, but Thomas Keller, who, who runs like the French Laundry and, and a lot of these like amazing restaurants in the world.

Um, So he, he calls it desire, right? He doesn't call it obsession, right? Passion is something that you can walk in one day. He's like, I'm passionate. It's a, it's a hobby thing, right? You can, it keeps you up during the day. It's like, Hey, you can do this on the weekends. You can do this when you're not busy.

Like, I am passionate about rock climbing. I'm passionate about X, Y, Z things, right? Passionate about like pottery and all that. But they're fleeting in nature. They're almost like, you know, like cravings, like you, like I ever so often have like ice cream cravings. I'm like, I just need to eat a pint of ice cream.

And after that, I'm like, I don't feel like touching ice cream ever again. Right? And that's like passion in my opinion, right? What is more important is Thomas Keller calls it desire, I call it obsession, which is not what keeps you up during the day or not what you're excited about, like waking up and and doing, but what keeps you up at night?

Like you'll wake up like in a 2:00 AM sweat and be like, oh my God, like what went wrong with this? Or like, I'm thinking about this and this happens. Or like, at least for me, my sleep schedule's a little bit off because there are certain things I get obsessed about and I wake up in the middle of the. I don't know if like, I assume this is audio, but if for any video I have this notebook always next to me, not only here, but I have another one next to my bed where I just wake up and start and like start to journal anyways,

Rishad Usmani:

what is, uh, uh, sorry to to interrupt it is video as well.

Um, what is in that notebook in the past seven days? If you don, if you can share what's your obsession right now?

David Zhou:

Yeah. Um, so let's see. Um, what have I, this is, this is a great way to like, you know, if anyone's like building products in this industry, like I'd be really interested. Event planning, that's one thing.

So I, I like spend a lot of time. So the, uh, one of the journal entries actually like last, last night was like signs of a great event, right? Um, signs of a great event. They're threefold, right? In my opinion, one. , there are reasons for people to catch up with after, and they've grown from the experience. And I, I, I like, I think about events a lot on, on the wavelength of stories, right?

There should be plots, there should be character development. There should be an inciting incident where people want to go to an event, right? And so that's like character development. The audience grows, like they come out as a different person as they, uh, compared to what the person they walked in with.

The second thing is this level of exclusivity. I'm not saying that you should only have like each, everyone should pay like $10,000 in terms of this exclusivity kind of thing. , even if it's temporary, making them feel like they're part of a larger cause just within that group of audience than them their themselves.

Right. One of the things, actually, this great paper, which I highly recommend people to check out, is this paper by George Lowenstein, 1994. It's called A Psychology of Curiosity, and in it he details the five triggers of curiosity, right? Ranges from questions and riddles to information known to others to.

Access to information known to others, to unknown resolutions and all these kind of things, right? H highly recommend, I think it's like 15, 20 pages. Super quick read. Um, but um, like the exclusivity portion of it is what, like what word of mouth ends up becoming right? And so there's like, , that's information known others, right?

So people want to know about this, like word of mouth happens there. People think about it in the wavelength, like candy versus the meal, how people meal, which is like how people think about things versus how people talk about things are very different. And I like recently wrote a blog post on this as well, which is like candy versus the meal, which is like your pitch deck, your complete business is the meal.

It's like, that's how people think about it. Your business model, how you're getting traction, how much are you raising? Everything that's on the fish I, that's the meal, right? The thing is when people actually talk about, Pitch to like their fellow partners or to other investors and to share the deal. They don't talk through like slides one through 10.

Um, they talk about something different, right? They talk about like, oh my God, I learned something from Rashad. And I was like, I just, it just blew my mind. Right? Couple examples of like, candies that I've heard is like, you know, um, Uh, like, you know, I, I think I wrote this in this blog post as well. When I first jumped into venture, there was a guy who was like, Hey, you know, I'm, I'm, I love learning so much that I used to walk.

He lives in, he used to, he grew up in this village outside of Cairo, Egypt, and he's like, I used to walk from my village to that, to Cairo 10 hours one way. every week, right? So 20 hours, uh, two ways, right? And I would go to their library, I would download every single Stanford research paper, I'd print 'em all out, and I'd bring a fat stack of, of Stanford research papers.

I'm gonna bring it back. And I just like spent the week reading it and he got like really big into like biotech and AI and at that time and all that. And, and I was like, this is awesome. Like this. Like this is a level of grit that I would like, even now I'm talking about it. Live with your audience and all that.

Does that, it's not indicative of the business. Like it, it doesn't tell you anything about what he's actually building. Right? But that's what people love talking about and that's how it spreads to other folks. And similarly, if you're building a product, right, you want people, there's some things you want people to talk about.

You need to like elicit that in either surprises or suspense, right? I can go more on that. But anyways, the reason I bring up all that, because your original question is like, how'd I get into art? Is I had a deep desire. I had, like I was obsessed, um, in kindergarten. I was in the beautiful little kindergarten out here in the Bay Area, and we, one of my fellow classmates was an incredible artist at like, I think it was like 5, 4, 4 or five years old.

Um, and she was really good for like, someone her age and what pissed me off, not what was the fact, not the fact that she was really good and she would always get the, the uh, the praise from the class and all that was the fact. There was one day she told me, she's like, David, you really suck. You should stop drawing stick figures.

And I was like, I've just, I've gotten prove wrong. Like, it's not even like I like art or anything. I've just, I've gotta prove her wrong that I can do it. So I, like, I went home that day, I told my parents like, Hey, you know what I, I need to sign for, uh, art classes. I just need to sign up for it. And that got me into the world of art because it was like, I've, I've gotta prove her wrong.

Right? And eventually, , uh, I ended up getting first in the class in this like little small art contest within our class, which is like, of, of 20 folks. Um, but then I fell in love with it because the more accolades you build and the same thing is true for something I used to hate swimming by the way, but, uh, but then the more like, uh, achievements you get, the more you like something because it's like external validation and all that kind of stuff.

Right. And that was true as a, as a kid. , which is why like giving the gold star a gold sticker to to, to students who do well is such an encouraging thing for people to actually pursue certain paths. Anyways, um, I fell in love with art, ended up doing a bunch of art competitions because I started like building a level of like, detail towards it and how that like transpires to today is at the end of the day, even for my blog.

You mentioned my newsletter and my blog, right? Um, I'm an. But I differentiate that with being a designer. I think as a founder you should be a designer as like a content creator. You can choose to be a designer or an artist, right? The difference between that is art is created from the person themselves, like Rehad.

You mentioned you do abstract art, like you have, like you feel compelled to pull, put certain things on canvas. It's not like, you know, it's not for someone else. It could be for like maybe for your parents or for family, or for someone, right? But initially it always starts from yourself. You're like, I really wanna put this on a canvas and I just have to.

Right. That's what an artist does. And that same thing for my blog, right? I don't write for any particular audience. I, in fact, like from the thesis of my blog, I started with like, Hey, you know what? I'm going to write for one person alone because one person who is guaranteed to love my blog is so much better than having 10,000 people who kind of care for my blog, right?

And the one person I write for is the person I was yesterday. So I'm gonna share information that I learned today that I know the person I was yesterday is absolutely going to love. over time, I guess other people ended up falling in love with it as well. Um, but really that's where the newsletter started.

And so I'm an artist, right? Whereas a founder should be like, or like, you know, somebody creating for others should be like a designer. You are creating something with the purpose that other people should like it. It's less about self-expression, but more about like other people's expression, how they think about life.

So anyways, I'm gonna pause there. Yeah. I think,

Rishad Usmani:

I completely agree with the differentiation between passion and obsession and it's not even, I enjoy painting, I just have to do it. Um, or I just get very anxious. Let's go back to the comment you made where you saw something in you that led you to believe that you will not be one of the 0.01% top VCs.

What was that something you. And what would it take, and you might answer this question with, um, what, what was that something you saw, but what would it take for you to change your belief on that?

David Zhou:

So it was less so of like, I would've become a top 0.01% vc. Um, there were certain things that other people were really good at already that had honed with decades of experience and thought leadership.

Like for example, like I, I saw pretty early on after like Doug Leoni at Sequoia did a couple talks publicly, shared a couple of insights. I was like, I cannot a, as of where I am today, like then I, I cannot ask questions like Doug Leoni asks, like one thing he actually shared publicly, which I'm happy to share.

Like, um, I'm kinda like redirecting folks to different resources, which I, I think they're, they're, they're often great at that as well is Doug went on 20 vc Harry Stabbings, 20 VC at one point in time. Um, and he shared this question, which was, , like figuring out like a founders strength and weaknesses without actually asking them like, Hey, what are your strengths, point or weaknesses?

And the question he asks is two parts. One, do you have a sibling? Right. And if you don't have a sibling, it's like, okay, do you have a, like a best friend, do you have a roommate? Do you have a spouse? Do you have whatever it is? Right? Um, and, uh, once you say yes to one of those questions, he goes, like, how would you describe, I, I'm paraphrasing here, but how would you describe that person in three adjectives?

Um, and it's like, I always was curious like, why would you ask that in the first like meeting? Yeah. You only have so much time to talk about things in in the first meeting. But the reason he explains it is when people describe someone else. For example, if I say Rehad is like a great content creator's, a great like interviewer, right?

In my mind, by definition, I feel like I'm less of an interviewer than you are. , it's a comparative statement. If I say reha is curious. Interesting. I, I believe I like at least internally, like not saying that you're like, it could be like you're the best interviewer in the world world, but a, as of the moment, I just feel like I'm a worse interviewer than you are.

If I say, like, if I were to describe you as that. Right. Um, . And, and so it's a great way for founders to reveal what they think they're lesser at, better at compared to the people who are, they're close around, uh, closely associated with. And it's a great way of asking strengths and weaknesses, which I've, I've, I've adopted a little bit here and there for, for questions that I've asked founders.

Um, but I realized early on I was like, oh my God. Like, these are things that I've never even thought about. Right. It's, it's one thing to think about it and like just like struggle at finding the solution for it, but it's like, I've never even thought about it. Right. And. Given that, going back to the execution risk, there were certain things that I was just like, I, like I would, I would take so much longer to build up to that point, and they have like 30, 40 years of a head start compared to me not saying that it can't be that one day.

Like there's always the thing like, you know, um, Jeff Bezos once said like, Hey, if everyone has a three year time horizon, like I'll have a five year, seven year, whatever time horizon. Right. And then I'll be the last one laughing because everyone else will retire in three years. And I'll be like, I'm still out in like eight years and I'm still kicking it.

And like it's survivorship. Like, you know? Yeah. At that point. And so there's a world of that, not saying that I will never become the plot 0.101%, kind of like of, of VCs or founders or whatever it is out there. Right. Or for me it was like, you know, art and, and then swimming. Like I, I, I knew. Decent, like in swimming.

But given my competition days, like I knew I was not as good as like Michael Phelps per se. Right? Like yeah, I knew, I just like, it would take me much longer to get there, where sometimes you need a little bit of innate talent and a innate desire that you start earlier. Like I started, I, I actually think I started swimming a bit late, like competitive swimming a bit late compared to everyone else.

Um, so anyways, there was that, and I was like, okay, you know, . I won't compete where people are great at, but I will compete in areas where one, I am personally very, very fascinated by. Right? Like, I, like I will w like I will wake up in the middle of the night just to write about these things. Like I mentioned events, um, you asked a couple others.

I talk about growth hacks. I talk about, um, the LP industry. I talk about how to podcast. Um, like, you know, I also like, I love cooking as well and I had this like recipe I made up in my mind called like the chicken ru lad recipe, and I like wouldn't mix it, a pumpkin soup and all that. Anyways, I think about these random things in the middle of the night, right?

But I have like an innate, and this is true for founders as well, like you have to have an innate curiosity where you're just gonna like wake up in the middle of the night thinking about, that's one, right? That's the first like litmus test to like if you have the potential to be a 0.01%. The second thing is what is.

Play to you, but worked to everyone else. Right. What is exciting to me, like I like, I don't know if I ever wanna make a living out of hosting events, but I do enjoy hosting events, don't get me wrong. Right? And I wake up in the middle of thinking about it. And most people just take events for granted and they're like, oh, I'm just gonna do a fireside chat.

And then, Things are gonna happen, right? Or I, I, I, I, I do a, like a networking event. I do a happy hour and people are gonna show up and I just have, I don't have to do too much to about it, right? But I think very intentionally about what creates like a great event thesis and how, what, what the user experience is like.

I enjoy that, right? Am I the best one in the world right now, in the world right now? Maybe not. I have friends who are just like, they think on different wavelengths, but it's also collaborating with them. You're the average of the five people you hang out with, right? So working with them, building these.

Unique experiences where people walk on like the, I've never had this experience ever before in the events kind of analogy. Um, so not saying I won't become the 0.01% of, of whatever, right? But saying that, where do I have a unique place where I can grow faster than others? And it's a function of personal entertainment enjoyment.

So for example, like needing to prove my, my, my classmate wrong that I was like not bad at drawing stick people. Right. Um, and as a function of um, I think biology start of Austin as well as Chris Dickson calls the idea MAs, um, things are obvious in hindsight, not as obvious in foresight. And if you were to look back in your life, what skills or relationships, you know, experiences have you built up that is unique to you, that is either really hard to replicate?

Because of its unique path, almost impossible to replicate. Um, and that's the unique edge and where you have a unique disposition to hopefully one day become the 0.01%.

Rishad Usmani:

Going back to the gold star analogy and collecting accolades, Magnus Carlson re recently said that fighting for the world championship is better than being the world champion. Talk to me a bit about your end goal, and I'd like you to tie it in with your upbringing in childhood where it sounds like you were moving around a lot and I was the same way. I think I had 19 or 17 schools by the time I finished high school. Mm-hmm. , I find my home is in moving and chasing new goals and have a very hard time being comfortable with stability at you the same way Where is home for you and what motivates.

David Zhou:

That's a great question, by the way. Um, there are certain things, um, that are comfortable to me, like, you know, the, a human's worst enemy is, is comfort, right? Because then you become lethargic and you, you regress to your lowest denominator, right? Skills all atrophy over time. If you don't practice them, they, they only become worse.

Um, so first part of the question, wa was goal. Second part of the question was, , where am I comfortable? Where am I like uncomfortable, so to speak. Yeah. Um, I, so it's, it's funny, like I recently put together like a personal career manifesto just to help me have like a focus for, for where I want to go. Um, and, and really it comes down to like when, when it comes to like comf comfort and uncomfortability, I really beat myself up over the fact that I didn't learn anything.

in a given day. Like, so I meditate in the morning, I meditate at night. Um, in the morning, I kind of like, it's 10 minutes on each, right? It's not like crazy, but it's like in the beginning it's like, Hey, what would my ideal day look like given my schedule and how can I set myself up to have the ideal day?

Right? Um, for example, like I meditated this morning. I was like, you know what? I'm going on Shaun's podcast today. Um, how can I make sure I bring my A game, right? And how do I set myself up to, to do that? And I'm gonna be honest, like I, I don't know if this is true for other people who show up on podcast.

I just did like 20 burpees before this, this thing started, and I was like, okay, I need to get my blood pumping in order to like bring my a game here. Right? And so those, these, those are the things you set up for that. On the flip side, at the very end of the day, I kind of reflect at the day. It's like, what could I've done better?

What could I have? Like, you know, what did I learn from today? Right? Um, and it's just like intense visualization of what actually happened and playing out scenarios of what I could have done otherwise. Um, and one of the things that I absolutely hate that like boils my blood at the very end of the day when I meditate.

Holy freak. I didn't learn anything new today. Like I didn't talk to anyone. I didn't read anything that I was like inspired by. Right. Um, and I, I was left at a net mutual ground of like, I don't feel more inspired, I don't feel less inspired. It just feels like I'm, I'm, I'm, I'm slogging through life. And one of the questions I actually ask myself, not daily, but probably monthly, quarterly, whatever it is, um, not, not any specific cadence, is, was the David from, let's say a month ago, laughably.

like, could I look back at like a month ago, like David, like you know, let's say like January 1st of this year, can I look back and be like, damn, David made some like dumb did, did some dumb things and I'm just like, like I would never make those mistakes again. But if I think yesterday or the month before, the quarter before is David is just like, Absolutely dumb.

I know I've grown a lot in that span of time, right? Like it's hard to measure growth. Like, and everyone can say you grow 1% every single day, and that means like whatever, like uh, uh, growth after a year or so, right? But it's so hard to measure like, how am I actually growing 1% a day, right? Am I just like writing a new idea down?

If I'm talking to your people, what does that actually mean? But it's so much more obvious in hindsight, which is why I'm measured in hindsight. So the uncomfortability is like, I look back at, you know, David from a month ago, and I. I could, I like David from a month ago, can imagine David, I am today. And that's bad because if I can predict where David is going to go, I clearly haven't taken enough risk.

I clearly, clearly haven't made enough mistakes to get there. I'm also younger, like I don't have no whiskers in my beer to say like, oh no. Like I'm, uh, I, I, I, I, I'm like, you know, wisdom so to speak, but I, I can hustle, right? And. , uh, it, it pains me to know that I can predictably say from a month ago that I could see where David is today.

Um, and that's how I think about it. That's, that's uncomfortable to me. Right. That might be comfort to everyone else, but that's how I think about it. Right? And I always love to learn. Every conversation I have is like, I like to ask questions about, it doesn't have to be about about venture, right? It could be about literally anything else, right?

Like recently I learned, uh, I went to an Omic restaurant and um, effectively like with, I asked the chefs like, how do you make really good dashy? And he's like, Hey, you put in the bonito flakes, but as soon as you put in the Bonino Flakes, you have to turn off the fire. Like water has to stop boiling and you let steep in there frat in most like three minutes.

Right? And I'm like, interesting because every time I make Doshi it's like, it's super fishy, it's super smoky flavor and all that. And I'm like, I just, it doesn't taste like the restaurant quality. And like he taught me that. I was like, oh my, this is really cool. I was like, jotted. Those notes down as well.

Um, and so that's how I think about uncomfortability. Um, in terms of goals, that's a hindsight, right? And there's foresight goal is like foresight. Um, in my mind there's two things, right? I think everyone in life should have both a selfless goal and a selfish goal. So self list goals is what you tell pr, media your family over at like, you know, holidays and you're like, Hey, and this is how awesome things I've done, all the awesome things I've done.

This is what you want to write. This is what you want to have in your epitaph. Right? You know, uh, rehad die like as a great father, as died as like an entrepreneur, as a, an investor who believed in others, all these kind of things, right? Um, that's your selfless goal, right? That's what you tell people.

That's gonna help get you going. on your best days, like it's gonna really inspire You wake up on Monday and you're like, all right, I'm, I'm ready to tackle this. Right? Um, then there's a selfish goal when I think that's really important because like I ask Ash, I actually asked founders this, like, what drives you?

Like why are you building this business? Um, are you trying to put dinner on the dinner table? Right? Are you trying to prove like a childhood friend wrong? Right? Like, why are you actually doing this? And this is not something you put in the pitch deck, but I need to know what their innate reason and their innate drive is, right?

And the reason I ask for. Let me know if I'm cutting out by the way. But like, the reason I ask for that is the selfish goal is gonna keep you going on your worst days. Like building a a startup is freaking tough. Building a venture fund is freaking tough, right? Um, you're gonna fail a lot. You're gonna get a lot of nos.

You're gonna get rejected lot. and because of that days and weeks are going to really suck. And your selfless goal is g goal is gonna keep you going on your best days. Your selfish goal is gonna remind you why you continue to stick around and do this even for myself, like, you know, selfish versus selfless goals.

Um, selfless. You know, I, I puts kind of like, I wanna put a billion smiles out there in the world, which is either directly or indirectly, and help people. . So from the lower rungs of the, like the, the Maslow's hierarchy of needs to the higher rungs to self-actualization, to self-esteem and all that kinda stuff, um, there are many ways to do that, right?

Like I can do it as an investor by backing founders who are able to be boots on the ground and do that, like, you know, effectively an extension of, of, of my help towards them. I can do that by backing fund managers, um, where they back founders and those founders end up doing a lot as well. Um, that's a selfless goal, right?

The selfish goal. Man, I, I wanna make my parents proud. Like I want, I wanna, I wanna be, I wanna make sure that the David they gave birth to is someone that they're, they're proud of and that motivates them, uh, to be like, you know, that just like gives them so much comfort and, and like joy and pride in being my parent.

Rishad Usmani:

The one question I've been, uh, meaning to ask you all throughout this podcast, How do you look at investing in life in terms of is it a single player game or a multiplayer game? The obvious answer is that it's a multiplayer game, but a couple people like Naval Ravikant and Warren Buffet have come out to say investing in particular is a single player game.

What is your view on life and investing and is it a multiplayer game or a single player game?

David Zhou:

It's a. Thought exercise, in my opinion. Um, there are many different angles in which you can take it, right? Um, do you believe in a zero sum world or a positive sum world? And I think as an investor, I would wanna like differentiate it a little bit, like make it a bit more nuanced, right?

There are different kinds of investors out there in the world, like an angel investor investing like a five to 10 K check or a 25 K check is very different from an investor who writes like a million or 3 million check, right? And it's also a function of stage as well. in the early stages, and if you are not obsessed about ownership targets for whatever reason, , it's a positive sum game.

Like you investing in a company is not going to reasonably squeeze out anyone else like me. Investing in a 25 k check in a f uh, in a company is not gonna be like, oh my God. Like, you know, um, like, I'm going to squeeze out like the sequoias or benchmarks or whatever other investors out there in the world.

In fact, like founders love having small check writers. Um, . Oftentimes smaller check writers punch above their weight class. Their check size to helpfulness ratio is like off the charts, right? They'd write a small check, but they provide like a million dollars in value kind of thing. Um, that said, as you grow as an investor, as you professionalize as an investor, you become a fiduciary to other people.

That is not your own. , right? You're no longer investing out of your own pocket, but you are managing other people's money. And when you are managing other people's money, you become responsible for their capital gains and their growth as well. And they have certain expectations of like, you know, returns, right?

And, and because they have those expectations, they're. Like move you in the direction of the fact that you should write larger techs, ownership targets actually matter because owning, like, you know, Facebook's 1% of Facebook on Facebook's exit is much better than owning like 5e-07% kind of thing, right?

Um, the same thing is true, like, you know, like, uh, like 10% if you maintain a ownership target of 10%, when you go through a hundred million exit, you get a 10 million. , you know, you get 10 million back. If you go through a billion dollar eggs, you get a hundred million dollars back and all that. Right. But as an angel investor, like the economics really don't matter nearly as much.

Your goal. I mean, at least my goal is, is to learn and to help the founders, um, as much as I can and effectively like build, track, record over time. Right? But I'm not managing other people's money, so I don't have, I don't feel compelled to like, make investment decisions. Based on the fact that I need certain level of return.

Um, and it's also hard to like underwrite some of the risks at the early stage as well. And so to your question, if is it like a single player versus multiplayer game? It's multiplayer when you're like small check early stages because everyone's really collaborative, right? Everyone's trying to help each other.

Everyone grows with each other. Everyone's the protagonist of their own story trying to help others. Um, And then when you get into the later stages, when you get into like the, the stage where in which there are lead investors and lead investors, well usually there aren't any co-leads. It's like one lead investor and they either take up the majority of the round or all of the round kind of thing.

And because of that it becomes more single player because you being on someone's cap table means someone else cannot be on that person's cap table. Um, Alex, those are my thoughts on that. That makes.

Rishad Usmani:

Do you feel, David, it's harder to get access to great deals or to recognize them when you're presented with them?

David Zhou:

Uh, that's a good question. When I started off, um, I mean, when I started off it was both right. Um, There is a study that was, I believe founder collected this in like 2020 or 2021. It's on Mediums, one of their medium articles where they did a bunch of research and they found that the 30 most valuable companies in the world raised half as much money and were worth four times as much as the 30 most funded companies in the world.

And it goes to say like, you know, whether you hear about like Airbnb story when they started our Instacart, when they tried to get in YC and they just couldn't get in YC kind of thing. Um, and I think they, they submitted to their YC application twice or just like so many others where it was just super underestimated.

Like when. Twitch, uh, you know, Twitch is Twitch what it is today, but sort of as Justin tv where he just wants to live stream his own life. Right? And, and even more so like, uh, if for, for Floodgate, one of the best like seed stage firms out there in the world, I believe, um, Mike Maples mentioned this publicly at some point, but like 70% of our portfolio go through pivots.

And so it's so hard going back to that original question, it's so hard to tell in foresight if a startup is going to do. Um, and obviously what great is in myopic nature, um, is oftentimes when some Sequoia leads around or they have like impressive traction of like initial like 500% month that I might be exaggerating this, the 500% month of our month growth after they've hit like 10 K users or something.

Right? Um, , it might seem obvious and forced and it might feel like you need to get into these rounds and you need to get, get picked by the founders, but I actually think it's, it's harder to pick, right? It's harder to bet where it's non-obvious and if people are saying this might not be a good idea. Um, and one of the great ways to think about picking, which I've learned over the over time, right?

It, and I wrote a blog post about this as well. But is really picking individuals who have tasted excellence, who have really worked hard to obtain things that they were. Handed that were not fed to them on a silver spoon, right? This is, these are folks who are, in my opinion, like veterans. These are, uh, professional athletes.

These are chefs because if you know anything about any of these three industries, you have to work really hard to be excellent in that industry. And they might not have the entrepreneurial gene in them, but they have the, the gene in order to have the grit, to have the hustle. Um, and that's what I learned now, but when I started, I, I had no idea, right?

Uh, and I often, My anti-portfolio is full of founders that have never, like, were first time founders and had never built a business previously. They had great excellence in other parts of their life, but I just, I couldn't see why this was like this, this startup fit like a glove for them, right? Um, but they willed things into it existence.

And some of the best, now that I realize, um, I, we, we have so much of this fundraising phenomenon now that the best founders, I. They will, will their round into existence. They'll be like, Hey, you know, I'm raising $2 million whatever, pre-seed, seed, whatever the numbers are these days. Um, but instead of going like, Hey, in instead of going like, um, if you invest, we will do these things, right?

If you invest, we'll hire an executive who will help us with like go to market strategy and all these things. They'll be like, Hey, I don't really care if you like, they won't say this, but like, they'll give the notion off, like, it almost doesn't matter if you invest or not. because within 12 months I will make sure this happens.

I don't need your money as a prerequisite for me to hit these milestones. I'm actively moving towards these milestones already. And one of the small signs of discovering like great founders is, at least for me, right, um, could be contrarian, could be debatable, um, is if the founders have stalled operations and growth of their business for the sake of fundraiser.

Like, I don't think, even though fundraising is a full-time job, and that's why like being a founder is very stressful, I don't think it should be an excuse for you to stall your business. Um, and I think you should always be selling, you should always be acquiring customers. And oftentimes when I talk to founders who are like fundraising and not actually building the business, or there's no one else on their team who is like full-time building the bus business and making sure it grows even when the founder or the CEO is fundraising, um, that's usually like a tell of they're, they're raising money from means to an.

Um, and they're not actually dedicated towards the business and they might, they're not scrappy enough to think about different ways they can make sure the business works out, even if they don't raise X amount of money. Yeah. In,

Rishad Usmani:

in a game of looking for exceptionalities, I wonder if finding commonalities is an exercise in futility, and we should just accept that every startup is different and every founder will have a different makeup.

I wanted to ask is most, this being said, a lot of first time founders will not have access to a warm intro to you? Mm-hmm. , a lot of investors, and I would say the majority, I don't have a figure in mind, but I would say 95% plus rely on warm intros for most of their deal flow. Is that right? Do you have a different strategy?

Are you open to cold intro? . And then do you go looking for founders and have outbound deal flow as well?

David Zhou:

That's a great two-part question. Um, I'll answer the second one first. I do do outbound. Some of my best deals that I've seen that have put capital behind, um, our, our folks that I just discovered on Twitter, product on, uh, I found a couple on Kickstarter that I actually kind of liked.

Um, and not to like name any names and put anyone on the spot. Um, , I, I, the exercise of going outbound is really, is good because every investor has like rough thesis, they pitch to LPs, but no one, like, sometimes it's hard even for an investor going back to like picking exceptionality. No one really knows what that actually looks like, right?

Mm-hmm. . Um, and sometimes exceptionality is just luck, right? Uh, but I, I think every investor should. Some sort of founder or company persona in mind when they're looking at, they should have some kind of framework, some kind of guideline as they're, that motivates like maybe like 70% of their decision making, but leaving themselves op themselves open to like 30% of, of new information, so to speak.

Right. And practicing the outbound is important for honing what that guideline, that rubric. Framework looks like, because as long as you're getting inbound, there's a, there's a selectivity bias, right? You have an availability bias of like, you only see deals where people are reaching out to you. For me, I'm not as big as like the Mark Andreessens or the Seros or the folks of the, in the world.

So I am getting a, a subset of, of the deals in which they get right. Um, and if you only focus on inbound, especially if you wanna build like a generational firm or like you wanna like be an investor for the long term, um, you are getting a very biased sample. and you're not even getting a bias sample size in the sense of like, especially when you start off right.

You're not getting a bio bias sample size at the top 25%. You're getting a bias sample size of probably the bottom 50%, um, or maybe like the middle 80% or so, right? Um, but that doesn't give you an idea of what exceptional truly looks like, and I think practicing that outbound muscle is really important.

Um, that was your second question. I forgot your first question. Um, can you run me? Yeah, it

is just what, what is your strategy of outbound versus inbound? The first question was more of a comment,

cold, cold emails. Um, so, uh, so yes, my strategy for outbound is like, you have certain things you look for out there, right?

Um, you like there something I did when I started off in venture, which, uh, I don't, I'm gonna be honest, I don't do as much now. When I was a student in Berkeley, I was like, Hey, you know what? Everyone's like a hustler in Berkeley. Everyone's an early adopter in Berkeley. Everyone loves trying new things out.

I would just treat my friends out to like a Boba, like a pearl milk tea or like a meal for every introduction they gave me. So what I'd do is like I would meet with them on a biweekly basis for folks that I knew were early adopters. These were like five to seven folks that, friends that I knew that were like just loved trying new things out, and I would just treat them out to a meal every time they sent me three to five startups.

They just like, , they don't have to know the founders. Right. They introduced me to the founders even better, but I just needed to know like what were like really interesting things they were trying out that they absolutely loved and they still kept on, on the app screen and their phone. Right. I just needed to know what was still on the home screen of their phone.

Um, and so I got a lot of like, I wouldn't call it deal flow necessarily, but I got a lot of insight into like. Consumer products are sticky and what are the signs of a sticky consumer product? Um, from my friends who just love trying new things out. Um, and I got a lot of deal flow there and I like, you know, it's, it's a fairly small sum number.

Like, you know, every two weeks I'd probably expense, like, I probably like spend about, give or take a hundred bucks. So it wasn't even that bad, right? Um, but the a hundred bucks was well worth the deal flow in which I got as a subsequence of that. Your first question was about cold emails and warm intros and all that kind of stuff.

Um, I'm a strong believer in cold emails. Yes, there's a, there's a thought like process of like, you have to get a warm intro because if you can't find a way to me or to any investor, um, you don't know how to find your way to a CIO or a CX O or a C M O of a company in which you need to sell to. Um, I think this is more so true for enterprise sales or like enterprise products or legacy.

Um, it's less so true for a consumer, like you're not trying to weasel your way into like an inbox per se, or like any particular person's inbox, but you're building a persona and targeting that persona at, at a large scale. Right? Um, that said, that is also the reason why I think the venture industry, both in being invested and also investors being in the industry, is a fairly nepotistic.

um, in the sense that it, you're only surrounded by folks who are within like, first, second, maybe even third degree connections, but no further than that, right? I love cold emails because I realize that I am not the smartest person in the world. I'm not the 0.01 person percent VC as of now, at least in the world.

And I realize my thoughts are subject to change and I'm willing to have those ideas changed by think by people outside of my immediate network. Um, that said, while I love cold email, There is an art form to, you know, sending cold emails, and I've actually written about this on my blog, and if you go to my blog in the, like, in the contact page where you can reach out to me, I actually share exactly what quote unquote is my cold email template.

Um, which I actually think not only works for me, but works for like so many other investors or anyone who else you wanna reach out to out there, right? Um, and I prefer to have emails, cold emails sent to me in that format. Um, but that, that said, I am open to cold. ,

Rishad Usmani:

let's talk about diligence, and let's frame it in the sense of structure versus intuition.

Mm-hmm. , talk to me about how much do you rely on structure and how much do you rely on intuition? And we can focus on founders, or we can focus on the product or their sales strategy. Um, feel free to focus on whatever you'd prefer.

David Zhou:

Yeah. Depending on the stage in which you invest in. So I, I spend most of my time in pre-seed and pre pre-seed.

Like, I try to go, I try to be like first check writer and like early, early on, um, because of that structure matters slightly less. That said, if you're a series A investor, like there are certain metrics that you just have to hit. Like, you know, if, if someone's hit like let's say the series B or series C and they're still like pre-revenue, that's probably not a good sign.

Obviously, depending on the product, like biotech and frontier tech, they differ, uh, like in various wavelengths. But if you're a consumer product or you're an enterprise like SaaS product and you have no revenue by the series, , that kind of sucks. Like, I don't, I don't think folks should get funded, and admittedly, some folks have gotten funded over the past, like two years be because of the FOMO and all that kind of stuff.

Right? Um, so having some structure to know like what is the, what is non, what are the non-negotiables, I think is really important, right? Um, that said, don't lock yourself in. Like it's very similar if you're on like, let's say the dating market. Like don't be like, this is my ideal type and I won't settle for.

less than my ideal type and like you just arbitrarily made up this ideal type kind of thing. Right. Um, but you should have, like, some things are non-negotiables, right? Um, and, and, and that could be certain metrics that could be like, you know, if you're. at the series A, you need at least like tens of thousands of users.

That could mean that, um, if you're a consumer product by the series A or maybe in the seed stage, right? Um, you need, uh, folks, your power users need to be using your product at least four, three to four days out of every seven days of the week, right? And so having those rough sets of benchmarks help better inform you for like decision making.

But that said, like, a venture firm or an like an angel investor or whatever it is, right? You have a limited, like fund size, so to speak. An angel investor has a smaller fund size than a, like a VC does. Um, and because of that, you can, you can't say yes to every single deal. . Right? And so after you in your mind, have built this model to curate the top quartile, maybe the top decile of startups out there, that's when you rely on intuition, right?

I, I, I don't think you should start off with intuition. You start off with structure and then, um, you end on institution because out of the three amazing startups you're talking to, maybe you only have room in your portfolio for one more this year or maybe one more this quarter or whatnot, right? And that's when you use your intuition to tell you like, is this a long-term marriage that you would like to jump in?

even as an investor, I think about like, can I learn a lot from the founder as well? Obvi, obviously I'll share a lot with the founder and like from my expertise, but can I also learn a lot from the founder as well? Um, so that's how I think about like intuition versus structure. But I think some structure is important to set the stage.

So then sometimes you don't know what intuition's gonna tell you.

Rishad Usmani:

Thanks for that answer and I completely agree with that. This has been a lot of fun. David, thanks so much for coming on the podcast and we'll have to do a part too.

Do a part two, reach out. I apologize for my, uh, my internet, but hopefully we got some good tidbits and I'm happy to do another one.

David Zhou:

Thanks for having me.