Introduction

Patrick: [00:01:22] My guest this week is Sheel Tyle, who at just 26 years old has already had a successful career in venture capital. His most recent stint was as the co-head of the seed investing business at NEA, the largest venture capital firm in the worlds, where Sheel was also a partner. Now Sheel has set off on his own, setting up his own firm called Amplo and having recently raised $100 million venture fund where he is the sole general partner. He aims to invest with young, mission-driven entrepreneurs with a global focus. As you can tell from this resume which also includes a degree from Stanford and a law degree from Harvard, this is one ambition guy. There are several aspects of this conversation that will really stick with me, specifically his points on networking and the smartest decision he's seen entrepreneurs make. I also loved our discussion of some of the same trends we explored last week with Chris Dixon, topics like drones, automated cars, and blockchain, where Sheel often has different takes than the consensus. Please enjoy my conversation on Africa, entrepreneurship, venture capital trends, technology, and more with Sheel Tyle.

Investing in Emerging Markets

Patrick: [00:02:20] We're going to range all over the world of venture capital, but also literally all over the world. And I thought a fun place to being would be Africa. So I'm going to kind of open it up to you to talk about your thoughts on the future of specifically investment or venture investment on the continent of Africa. It's somewhere I've spent some time, and I think it's the most interesting and kind of magical place that I've been throughout the continent. But gets very, very little attention from investors kind of from the rest of the world. So talk to me a little bit about your background and experience there and where you think things are going from an investment standpoint in Africa.

Sheel: [00:02:57] Yeah. And first, thanks for having me. I think, before we start with Africa, we should probably talk about my parents. And the reason I want to start with them is, but for them, I wouldn't have gotten an interest in emerging markets broadly. My parents are immigrants from India, and they came to America for education, to pursue their American dream. They were not wealthy. They applied to schools that did not have application fees, and education got them everything. And so when we were growing up, my parents would never take us to places like Europe or the Caribbean, traditional vacation spots, if you will. We went to emerging markets. We went to Nairobi in '98 and actually left the day before the embassy bombing. We went to Brazil in '01. They wanted to show us how the real world worked, and, initially, my younger brother and I had no idea what they were doing. Why are they taking us to these places that are not very comfortable or as comfortable as where we are or where we could be or where our friends were going?

But over time, I realized that that was special. It was a unique experience that we were getting, and I began to appreciate it more and more. And it gave me a comfort, in those places. Fast forward many years later as a venture capitalist, one of my companies, Andela, has the slogan, "Talent is universal, but opportunity is not." There's no reason the next Mark Zuckerberg can't come from Africa. He or she doesn't have to come from Exeter or Harvard or Stanford or places that many folks traditionally think as the hotspots for entrepreneurship. They can come from anywhere. And as I was looking around the world, I realized that perhaps the biggest opportunity of our lifetime, perhaps the only untapped place left, if you think about it, is Africa. Many of the fastest-growing countries in the world are in Africa. Nigeria has something like 190 million people right now. It's the 8th biggest country in the world. It will soon be the 5th biggest country in the world, some say in the next 5 years, and potentially during our lifetime, it could be one of the 3 biggest countries in the world. It could go one day. Some people say it could go India, Nigeria, China in terms of population, which just tells you something. I remember going to, starting with Nigeria maybe 3 years ago, and realizing how dynamic it was. It reminded me of India when I first went to India. Or China, maybe, what I would imagine China would have been 30 years ago. So the development was just transformational, and I realize there's opportunity in chaos. And if you can traverse the chaos and be okay with uncomfortable atmospheres or weather that you might not be used to or traffic that might be a little bit annoying, there's a lot of opportunity. And so now, I've made a number of investments in Africa. I'm on the board of this company, Andela, which we can talk about, which is transforming education on the continent. But I just think it's the greatest opportunity of our lifetime.

Patrick: [00:06:11] One of the recurrent themes in all these conversations, and it's also the foundation of a lot of quantitative strategies, is this paired notion of valuation and momentum. And that when you get those two things in combination, powerful things can happen. And in your description of Nigeria, specifically, I kind of see those things. Maybe you can get into the sorts of valuations of the companies that you would be funding from a venture stage versus the similar valuations of say a Silicon Valley startup. But also this notion of demographic momentum, sort of an underlying change in the continent itself. So maybe talk a little bit about those two things for investing in Africa. So what are the differences, the primary differences in, let's say, valuation paid, and how do you think about best capturing momentum as you're searching for individual business, industries that you want to focus on? Maybe touch on a few of those. Talk about those concepts as it pertains to your Africa strategy.

Sheel: [00:07:08] And I think the best way to do that might be to tell you the story of Andela because it actually touches on a number of themes related to the demographics and what I look for. So more than half of Nigeria's population is under the age of 30, and I would say, if I were to guess, I would say the majority of that is under the age 20. It is fast-growing. But the other thing to note is, I think there's something like a 60% youth unemployment rate which, if not handled appropriately, can spell chaos. Idle youth are the worst thing that can happen to a country, or one of the worst things. That being said, they're not unemployed, in many cases, because they are incapable. They're unemployed because of lack of opportunity. They are just as smart as we are or as our friends or as anybody in China or Korea or India. And so Andela, what they do, is they play on the theme that, as I mentioned, talent is universal, but opportunity is not. There are smart young folks everywhere including Nigeria, Kenya, Uganda. So what this company does is it finds the smartest and has created this four-year program, similar to an MIT. A four-year education institution essentially, that trains people in soft skills as well as computer science and technical skills. But the innovation behind the model, other than the curriculum, is the economic model. Instead of students paying tuition, we pay students from day one. Now, what that means is suddenly everybody can afford an education. Now, it's even higher than that, and that really changes who can afford an education, even with financial aid, which not every place has. So I think the success of Andela is really measured by a couple statistics. One is the admissions rate. It's less than a 1% admissions rate which just tells you the demand. And I look at the quality of folks that aren't getting admitted, and they're extraordinary. The other thing is the retention. Fellows, we call them fellows, the students. Fellows, there's a 99% retention which means they are so in love with the offering of Andela that they choose to stay even though the business model is one where they're working remotely for tech companies.

I mean, people often ask, why would an Andela fellow stay if they're becoming the best engineers on the continent and there's a dearth of engineers everywhere in the world? In the US, for every one qualified developer, there are five open engineering jobs. Why wouldn't a developer at Andela leave and just go directly? It's because of this community and the curriculum and the soft skills and everything else. The same reason, anybody can choose to drop out of Stanford, but I would guess 98% don't. I mean, they're paying for an education. They're not even getting paid. So I think that plays on a number of trends. I think it shows that there are smart people everywhere. I think it shows that youth are hungry to learn. I think it shows education is in demand, and if you can come up with a radically new way of delivering education, you can increase its accessibility. And I think it shows that engineering is only going to get more and more important. Those skills are becoming more in demand, not less in demand, even though automation is occurring all around the world. The number of job openings actually increasing not decreasing. So it's a matter of training, and all that can happen in a place like Africa.

Venture as an Asset Class

Patrick: [00:10:45] Do you think that the prospective returns to venture as a class, if it deserves to be called a separate asset class, are lower, the same, even higher given your more global focus than they have been say in the last cycle? Some firms have delivered outstanding venture results.

Sheel: [00:11:02] I mean, look, venture as an asset class stinks. If you invest in the average venture firm, you're probably going to get your money back or lose your money. So it's not a great asset class. It is a winner takes all asset class, which makes sense. If you're investing in a great company, there are usually only a couple investors that are allowed to invest in those great companies. Those are the ones that deliver astronomical returns. Now, the best venture funds tend to deliver returns that are better than any other asset class, period. But there're probably 10 to 20 of those, and collectively, they don't actually manage that much money. If the average venture firm in the top 10 current fund size, let's say, is $500 million, there's $5 billion of interest, which is small. I mean, there are sovereign wealth funds that would love to do all that, but they can't. And everybody is competing for those dollars. So winner takes all model. That being said, I think that if you look at who is in those top 10 or top 20, that's constantly changing. There are a couple folks who are always, or who have been there, for the last, call it, 5 to 7 years consistently, Sequoia, Benchmark, et cetera. And there are a couple that are making their way in there, and those are the new guys, and that's the Social Capitals, the Thrives. The newer guys will continue to push some of the older guys out. I think today is not a great time, frankly, to be a venture capitalist. And I've told my LPs this. I'm pretty honest with them. I say, look, I have struggled to make great investments over the last 2 years. I think I made one new investment in 2017. 2016, I don't think I made any new investments, other than a couple of small seed investments. Large checks that I would classify as series A or beyond, large, proper venture capital checks, I don't think I made any. 2015, I did Robinhood, which was a big check, and a couple others. So the valuation environment on a private scale is frothy right now.

Patrick: [00:13:02] Could you put some numbers around that? Like what would be a more normal case for, let's say, seed or series A valuations, generically speaking, versus where we are today? What's the gap?

Sheel: [00:13:11] Let me give you an example of a company I spoke to yesterday. So typically, a seed company in most normal market environments, seed companies pre-launch, let's say pre-launch seed company with a normal founder, in other words, not the next Mark Zuckerberg; not Mark Zuckerberg leaves Facebook to start a company but normal founder. That valuation is single digits. Should be $3 million, $4 million, $5 million, $6 million, who knows but single digits. In bull markets, in super high bull markets, somehow those valuations are getting done in the double digits like $12, $14, $15. But you know a market is frothy when, yesterday I had a call with an entrepreneur who has had some success, so therefore, in theory, he could raise in probably the low double digits, call it the $10s to $15 pre-launch. He was getting offers from high-quality firms at valuations between $20 and $30, pre-launch, and with no customers, nothing. But $20 to $30, and to top it all off, he was even getting millions of dollars worth of interest at uncapped notes, which basically means you're getting free money because you're saying set the price later. Most notes, convertible notes have caps. Caps are what the valuation would convert into. It's a way to do a seed investment without actually having to price the seed investment. Many founders usually opt for this because it's cheaper on legal fees, and you can punt the valuation conversation. But the caps often signify the valuation. But when a note is uncapped, the investor's taking all the risk and not really getting rewarded. It's like when uncapped notes start to pop up and become the norm, I know things are frothy. So what I've told my LPs is, look, I am raising the money now, but don't be surprised if I'm really slow to deploy it. I'm only going to pick investments that I think are going to be great investments. And there might be a window where that means there's zero investments for 6 months or 12 months.

Patrick: [00:15:15] Do you think that, speaking of hyper-froth, that this notion of ICOs is truly a threat to the tradition venture capital and early stage investment norms?

Sheel: [00:15:28] It's funny, so ICOs, initial coin offerings for...

Patrick: [00:15:32] The uninitiated.

Sheel: [00:15:33] ... for those who haven't lost all their money yet to some of this. I think, look, it's funny you bring that up. When I first left and was going to start this venture fund, one of my buddies used to run a blockchain company. A bitcoin company that then pivoted into a blockchain company, and he said, "Sheel, I'm going to raise your fund on an ICO. We could raise $250 million. Forget $100, we could raise $250 in like 6 minutes." And I said, "Wow. This sounds awesome." And then I decided not to do it because of the regulatory lack of clarity on ICOs. I think it's completely crazy. I think it is completely ridiculous. And by the way, I am somebody who was a huge bull on bitcoin like 4 5 years ago. I bought bitcoin at $100. I sold at $1,000. I thought I was a genius. I wrote all these articles on why the blockchain is the next internet, and then I saw nothing for 4 years, where it continued to be a technology in search of a solution. Everybody talks about remittances and all of these different smart contracts, being able to conduct real estate transactions on using the digital ledger. People talk about all these potential use cases, micro-transactions. Nobody's actually built a killer app yet. And maybe I just don't know. So I feel like the hype has been there for a period of time, and maybe it will still come about. But when then new types of coin are starting to be created that are then being auctioned off with very little information about them, I start to get really worried. So I had the opportunity to participate in an ICO for a Filecoin with Protocol Labs and it was, I think, one of the biggest ICOs that has been done so far.

Patrick: [00:17:29] And to be clear whether or not it will work remains to be seen, but something that seems tangible or somewhat real.

Sheel: [00:17:35] But to raise that amount of money with no diligence by anybody means you're either going to get really lucky or you're going to lose your shirt. Those are really the two outcomes here, and as an investor, I would much rather invest than take gambles, and all this stuff feels like a gamble right now.

The Power of your Network

Patrick: [00:17:53] You mentioned something earlier which is this notion of the network producing deal flow opportunity, et cetera. The notion of networking is typically something people are interested in, and you get pretty polarizing opinions of it. One camp on the anti-extreme would be it's a complete waste of time. You should just do great work, and the network will coalesce around you. The other is that it's an extremely important resource because connectivity and relationships drive everything. So where do you fall? When you're thinking about where you spend your time, what relationships you try to build, foster, ignore, how thin you stretch yourself. Talk about from the venture capitalist seat where you fall on that spectrum of the importance of networking.

Sheel: [00:18:40] I think networking is really important, perhaps the most important thing one can do. However, I think the definition of networking, the stigma that often is associated with it is not what I mean. When I think of networking, the most powerful networking is when you have genuine, warm relationships with a small group of people. That is networking. Networking is building and developing existing relationships. And through existing, warm relationships that are mutual with no, by the way, often business expectation at all, that's when the best business networks are developed. So for example, one of the people who is involved with my fund was somebody who I got to know in a personal capacity. He and I became very good friends. I got to know his family and I remember doing something for his kids. We were just friends. We had no expectation of anything. And then when I go out to raise my fund, I tell him about it. He's like, "Oh, I know a guy." And he picks up the phone, calls a guy, that guy ends up putting in one of my biggest checks. No expectation of anything but that's how it happens.

And I think even professionally, when I look at a company like Andela, I got to know Jeremy through a number of different ways. When I was at Bessemer, he had founded 2U which was one of the companies. And then he and I were both on the Forbes 30 under 30 list the same year and then we got to know each other through that. We were really friends for probably 3 or 4 years, and then he said, "Hey, by the way, I'm about to start a company." We started chatting, and I said, "Look, I don't really know what you're doing. This Africa thing sounds kind of crazy, but I'll invest because I believe in you." And it's those friendly relationships, where I trust people and they trust me, that have turned into my most important professional relationships.

Patrick: [00:20:38] I think that that's probably the best definition of proper networking that I've heard. Networking implies a big number of vertices and nodes and hubs in a network. When in fact, more a tightly knit, I'm thinking like Dunbar type numbers, like 15 people or something can produce probably more interesting outcomes. And the sooner you start to develop, we'll call, strong vertices in the network, the better results you have, as long as you don't expect anything from it.

Sheel: [00:21:03] I expect nothing, and I think the flip side is nobody expects anything. But I think if people think networking occurs at conferences, cocktail parties, or whatever is wrong. I don't go to any of that. I'll occasionally host maybe one or two dinners a year where I bring together my closest friends, and that ends up being more valuable than any party or any conference or anything that I could have gone to. And I think the other thing that I think is important to note, though, when it comes to networks is the most powerful networks are the ones that are diverse. People think the strongest networks are when I, for example, know all entrepreneurs or when a politician knows all other politicians or when a CEO knows all other CEOs. That's useful, but the most important, most valuable networks are the ones that are cross-sector, cross-discipline. For example, one of the people who is going to be a board partner for my firm is the former Prime Minister of Australia, a woman named Julia Gillard, first and only female prime minister of Australia, an amazing woman. She gave a very famous speech on the house of parliament on misogyny.

Patrick: [00:22:09] I remember it.

Sheel: [00:22:10] And she is my first board partner, and she is joining the board of Andela. Andela wanted her because of her wealth and diversity of networks. She knows folks in politics, but she knows CEOs, she knows entrepreneurs, she knows everybody. And that is so useful because that's when you can, from a node perspective, that's when your node is like a circle as opposed to a line only leading towards one area. And those are the types of folks I try and surround myself with.

The Venture Landscape

Patrick: [00:22:46] So I'd like to move now to some of the hot topics, and hopefully less covered topics, that you're also interested in within various industries or aspects of the venture capital landscape. We'll start with some of the more popular ones to get your take, get your opinion. And then I'd also love to just hear from you which areas you're focused on that maybe you think that venture capital, broadly, is mistakenly avoiding. We'll start with driverless cars. So that's one that when we were chatting ahead of this conversation, you had mentioned you have a particular interest in. So maybe you could give your impression of where we are in this very popular topic, and we'll get into some of the potential implications of the timeline as you see it.

Sheel: [00:23:29] So I think the driverless car could be, potentially, the most important technology transformation of our lifetime. If you think about it, 100 years ago, we moved from horses to cars. 100 years later, today, it's going to be cars to driverless. And let's start with where we are, and then we can talk about when I think it's going to be available. So where we are. We are in a place where many of the big tech companies, whether it's Apple or Google or Uber, some of these folks, as well as the traditional OEMs, they have built the technology. It mostly works, however, it is not at a price point yet that is affordable. And they have not yet solved for edge cases, and edge cases are what are going to make or break the driverless car. For example, how will the car perform in instances where there's two feet of water? Or there's a blizzard? Or a kid runs across the street? Basically things that haven't been tested, unknown unknowns. And with a human, you would think, whether humans do it well or not, and the argument is probably they don't do it well. With humans, you know that in theory, some intelligence will dictate what occurs. Now, of course, automotive deaths are one of the leading causes of death in this country, so maybe humans are not good at this at all and shouldn't be doing it. But in theory, you know that a human can make that decision, whereas we don't yet know what the driverless car will do. So that needs to be solved, and there are companies working on that problem by both modeling edge cases for the car and then programming how it should react, to the Google car driving everywhere and hoping that in the millions and maybe tens of hundreds of millions of miles that it logs, it will come across these edge cases. But that's going to be the big barrier. So that's one.

I think the second is insurance. We haven't really solved the insurance problem. Who becomes liable in the case of a catastrophe? Is it the software? Is it the hardware? Is it the government? Is it the owner of the car? I mean, who? And we haven't solved that. And then the third is, obviously, the regulatory. This could happen really slowly. It could happen really fast. I'm not sure. My instinct is to say it's going to happen slowly. I think the reason it's going to happen slowly is not necessarily because of the fact that the technology doesn't work. I actually think it's going to happen slowly because of the political ramifications of allowing the driverless car. If you think about it, car driving, truck driving, bus driving, taxi driving is the number one job in America, think more than 3 million people. More than 1% of our population is a driver of some sort. In theory, all of that could be gone. That is a huge number of people. I don't think we've ever had an instance in our country, maybe in the world, where such a rapid transformation and dislocation of employment is going to happen. So in a country where we're trying to create more jobs, not remove jobs, this is going to be the polarizing issue. So I think that is going to be the main challenge, and historically, innovators have not done a great job interfacing with the government. There has been this political apathy that's occurred in Silicon Valley where it's sort of an us versus them mentality, which I think is the wrong approach. If you think about it, the government actually created a number of technologies that Silicon Valley's built upon. The internet was created by DARPA, GPS was created by DARPA, et cetera. And they're going to need to engage really closely and work out how this is going to be a win-win for everybody and not just for the tech companies that produce the technology.

Patrick: [00:27:16] What do you think are the big benefits? So that's one potential drawback is a loss of a lot of jobs. In thinking about, maybe you could set the timeline, let's say it's 10 years out, 5 years out, 15 years out, something like that where most movement of people and stuff is happening through automated vehicles. What are the maybe non-obvious side effects of that that are good for the country, for the world?

Sheel: [00:27:42] I think there are a bunch. I think the driverless car, by the way, is going to happen. It's not a matter of if but when. So here are the biggest side effects. I think the most important is preservation of life. You immediately remove a lot of drunk driving. In theory, it wouldn't exist anymore. So there are going to be a lot of lives saved with the driverless car, in theory, if it works. I think a second benefit is going to be productivity gain. Think about the amount of time Americans and people around the world spend commuting. I don't have the statistics in front of me, but if I were to guess, I believe I had read something that the average American spends more than 30 minutes a day commuting, and it's probably even more than that. And that in theory could become productivity time instead of commuting time. That would have a massive economic impact on the world. I think the thing is it's going to reshape how cities are created and planned for. And maybe even cause a migration back to the suburbs because today, people often live near each other, and there's been this urban migration, I think, because of jobs, I think to remove commutes, I think it's more exciting. But the moment commutes go away, it opens up the world to everybody. So those are going to be some of the most transformational impacts.

Patrick: [00:29:01] What do you think from an investing standpoint is the most interesting way, if you were making investments in your fund, to benefit from this change? So I've seen things about software technology within the driverless cars, kind of the interface of this opened up time that you talked about. Are there less obvious or even contrarian ways of investing in this vision or technology that people are overlooking?

Sheel: [00:29:23] So here's the problem with investing in the driverless car as a venture capitalist, much of the innovation is hardware innovation, and that takes many millions, maybe billions of dollars, which most venture capitalists can't do, nor should they take that type of risk. So where it's really interesting is the software layer, and what I'm most excited by and the companies that I'm tracking are companies that are doing things that the hardware will require. For example, mapping. Right now, things like Google Maps are really good for calling an Uber, and you know I'm roughly here. They're not good enough for things like the driverless car. You need to have millimeter-level precision for the driverless car. Google Maps does not have millimeter-level precision. So mapping companies, for example, are going to be huge and critical for the driverless car, and that's something, in theory, you could do on a venture investment.

Another are the edge cases that I mentioned, using artificial intelligence to model edge cases and to figure out reactions to those edge cases. And that, I think, is going to be really interesting. I think the third might be in-vehicle software. This might be a step, maybe not today but if I'm sort of looking out a couple years. What is the ecosystem that's going to be built now in the vehicle? The vehicle could be completely reshaped. It might not look the same way that a vehicle looks today, and there's no reason for it to if you don't need a driver. But how is that platform going to change? And people say that that platform could be almost as valuable as the iOS platform or the Netflix platform or a television platform where you have an audience for a captive amount of time every day. And how are you going to monetize that? So my guess is there's going to be technologies all around there that are going to be venture-backed, and that's what I'm excited to continue looking for.

Patrick: [00:31:28] There's a couple of the really hot areas in technology, and it'd be fun to just do sort of an overrated/underrated quick round to go through some of these things. Then we'll get into some of the things you're looking at that maybe aren't in these categories. So the first is augmented or virtual reality. What's your take, overrated or underrated on those two things?

Sheel: [00:31:47] I think overrated for the general term. Everybody's like oh, augmented reality this, augmented reality that, VR this, VR that. I mean, great. It's a new technology. I think it'll have very particular use cases that are interesting, for example, gaming. It might be fascinating and transformational. A bunch of football teams now use virtual reality to train. Those specific use cases interesting. But to focus a fund on that or to just invest in technologies like that, I think the technology might be greater than the actual solutions out there.

Patrick: [00:32:19] You already did blockchain, which I'm assuming your answer remains highly overrated.

Sheel: [00:32:23] I think I'm contrary on this. I think it's overrated. I mean, I used to think it was underrated, but now, I think it's overrated. People say, well, nobody's heard about it yet. Actually, I'm pretty sure everybody's heard about it. When governments around the world are taking action on it and every news channel is covering it, I'm pretty sure everybody's heard about it. And you have to assume people are intelligent, and you have to assume that the price is all priced in. So I don't know. I think it's overrated.

Patrick: [00:32:52] Next one is machine learning/artificial intelligence, which is a huge focus for a lot of those big tech companies you mentioned earlier.

Sheel: [00:32:59] I think this is underrated. I think this is going to be massive. Artificial intelligence is going to impact everything. It already is, and why wouldn't it? At its core, artificial intelligence is essentially using data to make decisions. And as we are increasing the amount of data available and increasing the power of computing and increasing the power of the algorithms that we built, why wouldn't we apply that to every facet of our life? So I think this is underrated. I think there're going to be big companies that are built on this. There already are many, many companies that are massive that are essentially purely AI companies. So I think it's underrated.

Patrick: [00:33:39] Last one and then we'll get into some other stuff. Drones. Properly rated.

Sheel: [00:33:43] Yeah, I don't know. I think, depends on for what use case. I think drones as a military application, underrated. I think drones as a commercial application, probably fairly rated. I think it's going to be a hobbyist sort of thing. It's going to be great for photography and videography, and weddings will be done via drones. So I think it's going to be interesting. I think where it could be underrated is when you think about drones as a form of transportation. If you think about Amazon and what they've talked about. In the future, they're not going to FedEx you something, they're going to have a drone deliver it right to your doorstep, that's kind of cool. And I actually think that world is not that far away. The biggest issue with the companies that I've seen that are drone companies is not that ambition. The biggest issue right now is the cost and the payload. They have a amount of weight that they can support for the drone missions, and they need to expand that and they need to find a cost-effective way to do it. And then obviously the regulations need to adapt.

Patrick: [00:34:51] So everyone's talking about those five things. What are other categories that we should be thinking about or talking about, maybe specifically industries or categories, pieces of technology that you'll focus on or try to focus no when searching for young entrepreneurs?

Sheel: [00:35:03] Let me caveat this with, I tend to actually not be technology-driven, technology-specific. And the reason for this is, nobody had a taxi thesis when they were investing in Uber. I did not have a brokerage thesis when I invested in Robinhood. I genuinely think that we might have general ideas where the world is going. But specifically in company innovation, if we had that idea, we would have built. We should have built it ourselves if we could have. So I just try and find the best entrepreneurs and then get up to speed quick as to what their building. That being said, other than the things we just talked about, I think there are a number of traditional sectors that are ripe for innovation. We already talked about education. Education is ripe for innovation all over the world, and not just primary or secondary education but retraining, vocational training. It's going to become more and more critical as some of the trends we talked about related to unemployment occur. So I'm very focused on education.

Another thing I'm focused on is public safety software. There are a number of ways we can improve the safety of our country using software. And we already have in some capacities, and others we're woefully behind. And one example I think is a really good one is as it relates to natural disasters. So I was just in Houston. We just had Hurricane Harvey, and it was catastrophic. There were folks who I know who have lost their homes, and it was sad and it was unfortunate, but you also saw, by the way, the best of America and the best of humanity through that. Where you saw complete strangers helping each other and opening their homes to each other. But technology can help. Now, it can't solve everything, obviously, but I'm an investor in a company called OneConcern. Amplo, my fund is an investor in OneConcern, and the company is using artificial intelligence to help first responders and agencies like FEMA figure out exactly what damage occurred and where due to natural disasters. Part of the issue with a natural disaster, like Hurricane Katrina or Hurricane Harvey, is lack of accessibility to first responders. Nobody has any idea what damage happened, where it happened. Think about it, there's 3 feet of water. Well how are they going to get in and assess? And the 911 system are all overloaded because everybody's calling for help. So what this company does is it takes thousands of data inputs from what material is your home made of? When was it built? What type did the hurricane occur? What is the likely occupancy of your particular home at that particular time? How high is the home? Basically every single think you could think of, some publicly available, others private, aggregates it all and uses that artificial intelligence as well as has run backtests on different hurricanes to help first responders figure out what damage likely occurred. And agencies both federal, state, local all around the world, are already using the software or will use the software, hopefully, to help save lives because sometimes minutes in these instances can be the difference between drowning or not.

Patrick: [00:38:19] Do you think that, given the frothiness of the venture capital space, that it's the responsible thing to do for founders to maybe raise more money than they'd necessarily need today in anticipation of a change in the liquidity of the fundraising market?

Sheel: [00:38:35] I found that even in downturns, the best companies still get funded. So I tend to caution my founders against raising too much money. I think there are a lot of reasons why it can be seductive, but there're also reasons why it could be dangerous. The seduction's obvious, you have more money, you could do more stuff. The downsides are pretty real though. One downside, as often when you have more money, you tend to spend it quicker which is dangerous. I think that's particular dangerous because it increases your burn which means that you have to grow quicker. And if you don't hit your milestones exactly correctly, you could be in more ruble than you were before. The second reason is it dilutes you. If you're raising more money today, you're not going to get the same valuation as if you continue to execute as you say you will and raise that money in the future. So you're diluting yourself, potentially unnecessarily. I always think it's useful to have a buffer, but I don't think it's useful to be irresponsible.

Patrick: [00:39:38] As you're advising, you mentioned earlier that one of the benefits of seed or early-stage investing is that you can actually impact the direction of the business. As you're thinking about simple business levers, are there things that you encourage your founders to think about and focus on? So I've had some venture capital specific conversation on the podcast, guys like Andy Rachleff, where we've talked about the value proposition, sort of product-market fit, the growth hypothesis, how you scale. What we haven't really talked about are things like acquisition costs, unit economics, methods for scaling via marketing, et cetera. Are there kind of nitty-gritty aspects that you feel are especially important that founders focus on where maybe they don't do so naturally, that you can bring to the kind of early-stage formation of the business philosophy?

Sheel: [00:40:27] I think there's some general things that are just useful to remind founders, and then there are unique things. So the general things are some of the stuff you mentioned. I, just because of what I do, I see many companies and I see the comps and I see what's worked for this company, what didn't work for that company. So relaying that knowledge and saying, here's what's worked, and here's what hasn't worked. And here are some of the important metrics to track based on what has worked. Customer acquisition cost, lifetime value. There's some standard ones, and there are some non-standard ones based on the type of company. So in Andela, it might be retention rate. For Robinhood, which is a free brokerage, it might be things like trades per day or growth in AUM. So there're different metrics for different companies. So that's sort of the general stuff, but the great founders tend to know all that stuff. So reminding is helpful, but it's not game-changing.

I think the game-changing stuff comes when, and this is my philosophy on the best venture capitalist. I think the best venture capitalist had 10 times the value for 1/10 of the time. And they do thing that the founders either are not thinking about or doesn't have the bandwidth to do and that the venture capitalist is uniquely in the position to do. So for example, that could be recruiting an independent board member that is extraordinarily useful for the company. The venture capitalist might have a network with somebody that the founder may not. That could be game-changing. Another example is potentially PR related. So I remember Marc Andreessen, when he first invested in Coinbase, or maybe it was Fred Wilson, anyway, one of these guys. They wrote a ton of articles on why bitcoin is the future, and they talked to regulators about it and all sorts of stuff. The founders of this company couldn't do that. They didn't know them. They didn't know the regulators. They didn't have the clout. But the venture capitalist did. What did that do? It helped gain a broader acceptance, which directly drove growth to the company. It also helped the regulators not freak out because they're like, oh, there's so many, a bunch of legitimate people talking about how this is awesome and how it could help everybody. So those sorts of 10x things for 1/10 of the time. I mean, what? It was an op-ed in the New York times, and it was a couple phone calls, could be transformational.

Patrick: [00:42:51] It gets to the same notion of technology as a point of leverage, that you could do more with less. And it seems that given the clout that a lot of the most famous venture capitalists have gathered for themselves, that they can make that impact early on. That's a neat potential edge. As you think about the deployment period or the investment period for your fund, and obviously, this is going to be a total guess, and it could range around. But if you had to guess the balance of domestic versus international investments you will make in fund one, what do you think that'll look like?

Sheel: [00:43:22] I have told my investors that the best entrepreneurs can come from anywhere, can be any religion, any race, any gender, anything. Today, I still believe most of the best entrepreneurs come to America or are American or live in America. So my guess is 80 to 90% of my companies in fund one are American companies focused on American problems but with global interest and ambition.

Patrick: [00:43:48] Andela as an example.

Sheel: [00:43:50] Actually, Andela, I would classify as an African, I mean, not an American company. It is a Delaware corp, and it is domiciled in the US, but that's truly an African company. I mean more a company like OneConcern which is global ambitions, disaster prevention and relief everywhere but initial target market US. But Kashmiri founder who was a Muslim, went to Stanford. He often says that under today's laws, he wouldn't even be allowed in this country. And now he has founded one of the most competitive, it was one of the most competitive deals in the valley. So anyway, 80% to 90% for now. And then I would say, fund two or in the future. I only think the rest the world is going to get more and more competitive, and if we're continuing to trend down the path that we're right now trending down politically, where we are making America less of a welcoming place for immigrants. Then I think it's going to open up opportunity for other countries to welcome innovators.

Patrick: [00:44:49] We started with Africa or the notion of your historical, global travel, having been kind of all over the world. What is your most memorable travel experience?

Sheel: [00:45:00] The first thing that popped into mind was Cuba. So I got to go to Cuba with President Obama in 2016, and it was a transformational trip for America.

Patrick: [00:45:08] How did that happen? How'd it come about?

Sheel: [00:45:10] I still wonder. I'm like, why did they invite me? I still wonder. I think it was because the state department often drives trips around the world for promoting diplomacy and various things. And I went on one trip to Southeast Asia to specifically Vietnam and the Philippines, and the point was to meet entrepreneurs and essentially help create ecosystems of innovation everywhere. And it was then that I got the invitation to go to Cuba, and it was a huge honor for me. I mean, it was the first trip that the sitting US president had taken since 1929, Calvin Coolidge. And it was supposed to do the opening of the relations. So the president took 15 business executives along and then you have 35 government folks, congressmen, senators, cabinet officials. A huge honor for me. What I remember of that trip and what I take away from it most is my interactions with the entrepreneurs.

Cuba is a country that is socialist, truly socialist. Prior to the trip, it was illegal to be an entrepreneur. It's a felony. Yet, I met entrepreneurs who were committing crimes that in theory would have put them in the equivalent of jails for the rest of their life, but they want to do that to make a better livelihood for their family. They were sitting in the public squares where internet is $2 for an hour in a country where the average citizen makes $20 a month. And they were trying to hack into the wifi to be able to access it better. Or they were sitting in hotel lobby's or right around the hotel to access the internet and create a better life. That was on the technology side, but even many of them were opening restaurants in their homes, [foreign language] , they're called. As a result of the trip or maybe after the trip or I don't know what it was, but Cuba actually loosened their strictness against entrepreneurship. In other words, they made it better and more allowable to be entrepreneurs. But it was meeting people who were risking their lives for something that I and we in America take for granted which is entrepreneurship and innovation and its potential to change lives. Meeting them was an experience I'll never forget.

Patrick: [00:47:30] Makes me think of the entrepreneurial spirit. And an interesting question which is what is the best decision that you've ever seen one of your founders make? Best individual decision?

Sheel: [00:47:42] God I have a lot. I found that the best decisions tend to be decisions where the founders truly integrate themselves into the communities that they are working with and helping. For example, I can give you stories about the companies I've already talked about, but I'll give you a new story. So there is a company called Mark43 that is an Amplo investment. And what they do is they replace the software, essentially, in the back of police cars. So police, the software that they use for record management but also coordination between the different agencies. The old software created 20 or 30 years ago. Today, officers tend to spend just as much if not more time inputting stuff into software as they do actually patrolling and doing things for the good of public safety. So this company was like, "We want to change that. We want officers to do their jobs, and this other administrative work, they shouldn't be doing." That's step one of the company.

Step two is using the data they've collected to allow officers to make better decisions, which I think could be huge for not just public safety but for racial relations. If you think about what's going on in this country as relates to body cameras and all the issues that have happened with particularly white police officers and black drivers and black stops, let's say. It's hugely ambitious. Now, this company has rolled out with cities like D.C., so DCPD uses this software. The reason I gave you that story, the decision the founder made was he wanted to go on ride alongs with the police officers. This is potentially life threatening, and as an investor, I'm like you sure you want to go on a ride-along at 3AM in D.C., in the hood? He was like, "Look, if I don't do this, then how am I going to understand what actually happens. And how am I going to understand what the officers need? What the community needs? What the relationship is like between the two, what each constituent is going to want in this product and how they are going to react? And how do I make sure that the biases that are built into this product are the right ones and not the wrong ones?" So he risked his life. Every time you do one of those,I mean, we know this. Officers are very often killed in the line of duty, and God bless them because they are doing hero's work. But it's dangerous, and he's not even a trained officer. He doesn't even hold the weapon. But he's going along with these guys. So that's the type of stuff I respect. And my founders, the ones I want to back, are the ones that experience the problem that they're tackling for themselves.

Patrick: [00:50:27] Last question which is for those that are newer to the idea of venture capital and are interested in entrepreneurship and/or venture capital. Are there resources or things that you recommend people do as a first step? Sometimes there's no substitute for actually doing it yourself. So finding a way to make a small investment in a company or 10 or whatever. But are there any special recommendations that you might leave people with who want to learn more about all this?

Sheel: [00:50:52] Yes, I would say there are a couple of things to do. I think the first is read. There are a bunch of things you can read from articles and news publications. The standard are sort of the TechCrunch's and the VentureBeat's of the world. That should give you a sense of what's happening. But I also think there are a number of books that are useful and the authors to look up are Bill Draper is one of the most prolific venture capitalists, I think one of the founders, frankly, of the venture industry. He's written a great book. Even books like Adam Grant's originals is useful as you think about how to evaluate companies and what makes originals, originals because entrepreneurs are originals. So there're books. And then there's investing. So depends on your means. If you are of means, I would say go be an investor in 1 or 2 venture funds. You'll learn how they do it. And it'll give you opportunities to see what they're investing in and potentially co-invest on some of their opportunities. I usually recommend that over just being a venture capitalist yourself, not because I don't want other venture capitalists but I think it's actually really hard. I mean, the best deals are ones that are competitive and they have to be in the game. And so sometimes I worry that if you haven't done this before and don't have that network, then the opportunities you see might be the stuff that is more publicly available, and if it's more publicly available you should ask yourself why. And usually, that's because they didn't raise from the top venture firms. So I wouldn't want the first experience to be a negative one where the returns that one is hoping for is not what they get. But if you do invest directly in companies, dabble. Do a very small amount until you know this is something that you're uniquely suited for.

Patrick: [00:52:37] This has been really fun, Sheel. I think that it will be neat to check in with you maybe a year or two from now to see exactly what the portfolio's begun to look like, maybe keep our fingers on the pulse of different trends. This has been edifying. Thank you

Sheel: [00:52:50] Thanks for having me.

Created by @_Nick_Diller