John Lilly: 0:03

The truth is, entrepreneurs are the sun, investors So investors are only reflected light relative to And it's easy to get this turned around and say, oh, well, allocation is the main thing, but it's not. Building the thing is the main thing.

Hugh Williams: 0:18

Hello and welcome to the Tech Overflow podcast. My name is Hugh Williams, and we are the podcast that explains technology to curious people. You're probably wondering where Hannah is. Well, the good news is Hannah is about to join us with great interview. This time she's talking to John Lilly. And John Lilly was a venture capitalist. Now he's doing angel investing, plenty of boardwork, and he's just announced that he's taking on a role at which is a brand new investment firm that's focusing on and climate technology. And we'll learn a little bit more about that in the show. So let's join Hannah and John as they get into a great

Hannah Clayton-Langton: 0:58

John Lilly, welcome to Tech Overflow.

John Lilly: 1:01

I'm glad to be here, Hannah. Thanks for having me.

Hannah Clayton-Langton: 1:03

We're so excited to have you. Okay, so for our curious listeners, can you explain in simple terms what an investor does in practice?

John Lilly: 1:11

Well, yeah, I can explain what venture capital is. That's my that's my sort of area of the world. VC Venture Capital is a very Silicon Valley and now global but it's been around for, I don't know, probably the 40s or 50s when Bessemer and Greylock and and some others and they really got to prominence in the 80s and 90s with rise of Apple and Amazon. But the idea is that you try to invest, you know, usually a few hundred thousand to a few million dollars in very, very early stage companies, um, almost always technology or something new, technology that's enabling something And you're trying to turn, you know, $10 million into $10 It's not a super complicated idea. You're doing, you know, adventure risk, you're putting money at risk that banks, sorry, because like banks wouldn't things like Intel and Fairchild, which are really the of a lot of the early investments that were made in Valley.

Hannah Clayton-Langton: 2:04

Okay, so if you are trying to get those big wins that you but you're taking lots of risk, as you also laid out, you're not expecting a 100% success rate there.

John Lilly: 2:14

Oh, yeah. Well, that's why they call it venture capital. And it's changed over the years, but it used to be, you know, you'd spend months with a company and they say, okay, well, I think they've got this new chip process like Intel or did. Or, you know, Sequoia, who famously did one of the first of Apple, had a memo about, oh, well, we've got this young guy, he's kind of brash, Steve Jobs, he's in Steve Yeah, can they build this thing? But like, you know, I don't know if it's gonna work or But if they're pretty smart and like we have to, you know, a lot to be a part of it. But you know, it might work. And so a lot of times you're like I said, you're doing that banks or other kinds of capital wouldn't wouldn't support and public markets wouldn't do because like they look crazy when we invested in Instagram. By the time we did that, it was obvious to me that it was be a big company. But but you know, Kevin came in and he's like, Look, what if you could point at any point on the globe and like see happening right there, right now, with pictures taken by normal humans? And he was really clear that that was the vision of what was gonna exist in the world. He he could see it, but like it sounded ridiculous, it ridiculous for like what what year was that?

Hannah Clayton-Langton: 3:19

Just to give us a place and time.

John Lilly: 3:22

Well, we invested, we invested in probably 2013. We we wired the check four days before they got bought by So by the time we invested, they were adding like a million users a day. And then Mark, you know, invited Kevin over to his house and didn't let him go until they signed a deal. But I just use it as an example, it's the same, you know, when they came in and they said, Look, we think there's be a business where people are not gonna go to hotels and everybody's gonna sleep on somebody else's couch. And to you know, talking to a bunch of like pretty wealthy that are investing in a room, they're like, that sounds bad. Why would we do that? But Brian Chesky presented and Reed, Reed Hoffman look, it's working. Like, whether we do it or not, it's reads like, well, it kind of interesting, and whether I would do it or not, maybe I would, maybe I wouldn't, but we can see in the data already given us, like, this looks looks like it might work. And so a lot of times like things look like they won't and they do. Mostly, mostly they don't. And so, like, most companies fail, and it's just just of it. And so you invest and you're like, well, there's a lot of we don't know. We really like this, the founder. We think she's amazing, or we really think that everyone in the world, since they've got phones, they're gonna want stuff to do on it. And so let's go find things like Twitter or Facebook to it. And so it's all over the map, but you kind of go in assuming that well, it's gonna be hard, the status quo exists this way because a lot of people are making money on the status quo, and so you're trying to upset that because of some new or some new capability or some new idea. And most things don't work, but the things that work always are very spectacular in the way they work.

Hannah Clayton-Langton: 4:59

So it's crazy when you make Instagram or Airbnb sound like it was the sort of rogue challenger idea because both of are so instilled in the public consciousness now. It's amazing how quickly things can change. But I think that I guess the key takeaway there is if you only a small proportion of those investments are really turning out, you cast the net wide purposefully, but probably quite and then it's a high risk portfolio with a small conversion per company, but you hope for a large conversion of your overall.

John Lilly: 5:32

Yeah, I mean, we should talk about stages of capital, like seed stage and institutional capital and that kind over time. But like for a venture capitalist, what you do is you go money from what are called limited partners, LPs. And you, as a venture capitalist, what's called a general A general partnership might be four or five partners that making investments with some associates and some other so a team of recruiters or marketers or things like that. And then they might raise money, so call it $250 million or half a billion dollars or a billion dollars. And so that's the fund. And they raise that from uh limited partners. And so limited partners are anyone from like big like the Yale and Harvard Stanford endowments to corporate funds to high net worth individuals who are putting in five or $10 or $50 million into the fund to invest. But the idea is that these limited partners, they say, we're gonna give you this fund, you know, a billion dollars, and you're gonna try to invest that over three or four depending on the circumstance. And you might invest that across 40 companies, say. So 40 companies, and you got a billion dollars. And the idea is that in seven to 10 years, you want to get three billion or four billion or five billion dollars that billion. So you might two or three or four or five X it. And it's all over the map. Like a lot of funds don't return, and like you really want to be in the top quartile because there's a real difference high-performing funds and most funds. And in a portfolio of 40 or 50 companies, people say it's a power law distribution. So most of the companies will give you your money back, 1x. A lot of companies will return zero. And then in any fund, you're hoping for two or three that will return the whole fund. So if the fund's a billion dollars and you invest 50 dollars in a company, you're hoping that two or three of companies each give you back more than a billion dollars. Bill Gurley from Benchmark famously said, you know, only lose your money one time, but you can make multiples on each investment. So you might maybe make 10 or 100 times on a company, but can only lose what you put in. It's asymmetric, asymmetric return, and that's that's thing that makes it possible.

Hannah Clayton-Langton: 7:42

So it sounds like a lot lies in the sourcing and having an for a great investment, which I I know helped you spot later. But how do you spot a future winner or you know, think spotted a future winner? They may not all be as you've outlined. Like, is it all about the founders? You you mentioned an early Steve Jobs earlier when we were Is it all about a Steve Jobs, or is it sometimes about a Jobs and or a Steve Jobs Plus and iPhone or something?

John Lilly: 8:08

Well, I think it's a lot of different, a lot of different There's there's no one way to do it, there's lots of ways win. And because of this power law, you only have to be right a few times to be a really, really good investor and have really returns for your fun. You can be wrong a lot and be right a few times and still excellent. My former partner, David G. at Greylock, famously invested in Facebook and Roblox and He used to say, look, the job is you need to see all the companies and entrepreneurs that are starting. You need to win the right to invest in them, you need to whether you want to invest in them, and then you need to them build, help them build the company. And seeing, you're talking about sourcing. So every investor is different in this way. For me, uh, I'm technical by background, uh, I went to I've lived here in Silicon Valley for a long time, and try to be around the most interesting people I can. So, with Instagram, for example, I just noticed my friends Instagram. And in particular, I noticed a professional photographer of mine using it. And he has these amazing photos. He's like an underwater digital photographer before that was really very common. And what I noticed is that he started distributing his to us, uh all his friends over Instagram, which was funny at the time Instagram was like this basically filters. And so you put a filter on and make any any photo look kind of artsy with a filter. And I'm like, Eric, why are you doing this? Because like your photos are super high quality. And Instagram's like for sharing photos that aren't very high quality. And he's like, Well, I'm using it because it helps me connect to my networks over Facebook and Twitter and all these it easy to get them out to all the people. That was a signal for me. Oh, well, because he's doing this this way, like it may be relevant to lots and lots of people. And so then I started sort of chasing Instagram and trying get in front of Kevin and Mike, uh the founders, and started interacting with Kevin and tried to try to help him along the way. But that one was more like, well, I noticed a thing in the that people were using. Let's try to hook onto it and figure out how to get connected up. And we did, and we invested in Instagram eventually. Figma was different. So, Figma, I got a note from three people in a weekend. DJ Patil, he coined the term data science. He worked at LinkedIn for a long time, he was the US chief scientist for a long time. Uh, Jeff Wiener, who's the you know, former CEO of and another person, they said, look, you got to meet this Dylan. And they said they all said kid because he was 20. And so I met him, you know, I met him over a weekend, and I didn't invest then. We can talk about that story uh and how that unfolded a bit. But for that, for that situation, it was like everybody go meet this guy. For Kevin and Mike, it was like, here's an app, super let's go do it. I teach at Stanford a lot, which is where my background And sometimes people say, Hey John, I I I saw you teach. Can I talk to you about my startup? Then we do that. Um, you want to be as broad as you can to just see as much you can. Seeing is the first step. Uh, and sometimes it's the hardest because you don't know you're you don't know what percentage of the world's stuff you're seeing at any given time.

Hannah Clayton-Langton: 11:13

Okay, I so I love this. It's see, decide, win, and build.

John Lilly: 11:18

Yeah, and and this was this was super hard for me. So I'm an engineer by background. And so for me, I want to see a problem, and then I want to okay, I want to understand it. So I'm gonna ask a ton of questions and figure out how to do it, and then I can start to like think about how to solve the problem. So, like for an engineer, it would be like, I want to see the thing, then I want to decide whether I like it, then I to win it, then I want to go build it. And this this is the hardest thing for me as a VC was to the order is flipped. Because if you talk to an entrepreneur and you want to totally understand things before you decide whether you're what the entrepreneur is gonna infer from that conversation is like, oh, you may not believe everything. Because like the act of entrepreneurship is fundamentally I'm gonna just go change the world, I'm gonna do this thing. Nobody's ever done it before, and nobody can see it except me. And so, what happens when you're an entrepreneur and start a company is that everyone tells you you're an idiot for like years. Say, well, this is stupid and this won't work, and this is why this has never happened before. And so, entrepreneurs, at some level, you're just looking for somebody else who believes, who can see it. And so, like when an entrepreneur is pitching a VC, if comes back and says, Well, what about this and what about and this seems wrong? And an entrepreneur is like, Yeah, no kidding. I haven't figured all this stuff out. So I'm gonna go find somebody who can see what might go as opposed to all the things that might go wrong. And so for me, I had to kind of start to flip it around. So, like maybe like just believe that the entrepreneur is and awesome, and then just make sure I can like do enough so that they want to work with me, and then we can get into it and we can figure out whether it's a match and whether a good fit for how I work and how they work and that kind of stuff.

Hannah Clayton-Langton: 12:54

Okay, so in that first stage of seeing, sometimes that noticing a product like you mentioned for Instagram, and often that comes from just being out there talking to people, and you get behind a founder because they have an incredible and a a sort of je ne sais quoi that just you just know they'll do something great, and then I imagine there's a spectrum in where they're pretty compelling and you've seen their and it looks pretty good. So it sounds quite instinctive, actually, although hanging in that instinct.

John Lilly: 13:24

Yeah, I think you I would think I would say that when you you're using data as much as you can to try to figure out like where to look, where to see, who's interesting, that kind of stuff. You use judgment, I think, in the middle, and then I use data. Once you say, I think this is the right thing to do, then try to go use data that might tell you why you're wrong. You're not looking for confirmatory data so much as you're for to try to tell you why you're wrong. So I think there's like this data sandwich, use data at the beginning and the end, but a lot of it's judgment in the The numbers, like after my first year of being a VC, I think I saw 600 companies my first year uh as a VC, and I in four.

Hannah Clayton-Langton: 14:02

Wow, that's a lot. Four is a lot. Four is a lot, yeah.

John Lilly: 14:05

I mean, for a at a firm like Greylock, where I was, you're a board seat for everyone, you're writing a check for every company, and you're gonna be on the journey with these companies for five or ten years each. And so if you add two or three or four a year, pretty quickly you're on 15 or 20 boards, which is too many. And so four was a lot, especially for my first year to do. I did Tumblr and Dropbox and a couple others.

Hannah Clayton-Langton: 14:31

Just a few companies you might have heard of, guys.

John Lilly: 14:34

Well, they yeah, they were they were not garage startups then. I was doing a little bit later stage in those companies, but but yeah, Tumblr and Dropbox both did very well and to be in the world. But that means that for 600 companies, I've invested in I probably seriously looked at eight. And you know, I probably did follow-up meetings with 40 or 50 where I took two meetings. And then for like 530 companies, I had 50 minutes with start to finish and a follow-up email or follow-up So it's a lot, and I think that a lot of it's pattern uh, which I think works for you sometimes when you markets consistent and it works against you sometimes when markets chaotic like they are now. But yeah, it's a lot of judgment.

Hannah Clayton-Langton: 15:18

and decide. I was interested by what you said about Instagram, where you across the app, you chatted to your photographer friend about it, and then you said that you were the one trying to get in with the founders. So that speaks, is that what you mean by win the right to Like obviously, if someone comes knocking on your door, they're looking for your investment. But if you're really scanning things, sometimes it might the other way.

John Lilly: 15:38

Well, Kevin and Mike, like so they they started Instagram, got funded by Benchmark and Andreessen, and they were and it was kind of like it was clearly working, but they still very small. It was like 11 people, something like that. And so I met with Kevin and Mike, and we we got along. They're Stanford guys too, and we had a lot of background friends in common. And so they were easy to talk to, product people like me. And we talked, but they said, you know, what we really need is a DevOps engineer. We really need somebody to help us keep these servers up things are going great. I did what I could to get them more interested. So I said, Hey, do you want to meet Reed Hoffman or David David invested in Facebook, Reed, you know, founder of But they said, Yeah, well, that's cool. We like David, we like reading like you, but we really need as an engineer. And so one of the people who was working at Greylock at the time, his guy named Dan Portillo, who I worked with at and before that as well. And he was a recruiter for us, and he found him a guy. So they had been looking for this person for like over a And Dan said, I think here's a perfect person. I think you should talk to him. And they ended up hiring him. I think he was employee number 12 or 13 at Instagram. But then Kevin eventually called and said, Okay, we're raising now, and I want to talk to you guys. I want to talk about the race. And the reason really was we helped him recruit a person.

Hannah Clayton-Langton: 16:54

Interesting. Okay, so it's I imagine sometimes quite a long process, but all about building that rapport, building the relationship creative ways as well, as you said.

John Lilly: 17:04

Well, right. And so, I mean, we we talked about the Figma story too. So, Figma, I met Dylan when it was really just Dylan and co-founder Evan and two other people. He came to a coffee shop near my house and on a Saturday and gave me a demo, and he was probably 20, 21 years old. And he was showing me something working in the web browser I I previously run Mozilla, made Firefox, and I have deep experience in web technology. And he just wanted to show me this graphics thing, kind of Photoshop working in the browser, and it was amazing. And I said, that's amazing, and it's incredible that did this, and it's um, I love that you're using a brand new technology that we worked on on Mozilla, and like it's just been possible. So that's all really cool, but I don't think this is a So I love you, I think this is awesome. However, not for me to invest. And so I passed. So I think I hurt Dylan's feelings because like he's expecting the Mozilla guy to say, This is incredible! How can I be involved? And and I wasn't, but I was impressed with him. And he's like, Okay, well, that's a bummer, but can we breakfast next month? Because I just want to see if we can chat about some stuff. I said, Of course. I'll spend whatever time you want. And because you're an interesting guy, you're doing stuff. And so we we have breakfast and we'd go in and we'd to talk about, and we'd always come out with a longer list we had going in of new things to talk about. And he'd say, Can we do this again in six weeks? It's like, okay, sure, let's do that. And we just liked being around each other and like talking technology and product. And then eventually he said, Well, I've got something new I want to show you. And he showed it to me. And it was more interesting because it's more like is today. But I just learned to like him and trust his judgment. And then I noticed all the things he did to follow up. So there'd be times when he'd say, Well, what do you think this? I'm like, Well, I don't know an answer to that, but I think you should go talk to this person, uh, you know, former of Adobe, like the guy named I mentioned one time, Bruce And like six weeks later, when I had breakfast with Dylan, like, Okay, I talked to Bruce. Here's what he said. I'm like, Well, how did you get to Bruce? He's like, Well, I asked this person and this person, this And I just really loved his grit and his determination and follow-through and his non-defensiveness. And so for that one, we just built a relationship up over a year, a year and a half. By the time we did the A, we made just it's obvious we should work together.

Hannah Clayton-Langton: 19:15

But I imagine that the founders that pique your interest a similar set of qualities that you've just mentioned. And they're fairly intuitive when you reel them off like grit determination, but then non-defensiveness. Like that all sounds like the kind of person that you'd want back, but then I guess thinking more about that build phase you can sort of critique and work with to grow something.

John Lilly: 19:38

Yeah, that's right. And so partly it's a fit issue. So like there are companies that I didn't invest in gotten huge, and they'd come in and they'd pitch, and they clearly talented. And I just like, you know, I don't think I can do it. I'm not, I'm not transactional in this way, or I match, or like I like asking product questions and they like getting product questions asked. And so, to his internal credit, I mentioned to Reed one there's a a company that got very big, a consumer company, we could have invested in the A and we didn't, because I had I sent mail to Reed. It's like, look, I had this meeting uh and I think this might work, but man, I do not get along with the founders. I just don't think I can do it, even though I think it might make us money. And you know, Reed's point is like, look, the job is not be in every interesting company, the job is to be in enough interesting companies to provide really good return to your investors. So if it's not a fit, that's okay. Just find other good things that aren't a fit.

Hannah Clayton-Langton: 20:31

Wow, that is so interesting because the chemistry is as as the product. And it sounds like he was saying to you, you can get with saying no to something and it ending up feeling like a miss because it just wasn't right for you.

John Lilly: 20:46

Yeah, and that's it. I mean, uh, there's some things that you need that are that have such velocity that you really have to pay attention to and like work through your feelings. There are other things that could work, but like maybe are better for other investors to do. You know, Reed was perfect for Brian Chesky and Airbnb, he was just such a good match and such a good um advisor and confidant. Reed was perfect for Sam Altman when they started OpenAI. And Reed would would not have been as good at companies like mine, so like with Figma and that kind of stuff. But yeah, I think the fit between a founder and an investor is a big deal because it's it's very it's a very relationship. So over time, you're you just try you try to be useful to the entrepreneur so that they call you whether things on good they call you on bad days. And um, that's the main thing.

Hannah Clayton-Langton: 21:30

Well, and I imagine the hope is that they call you on the days, maybe more than they call you on the on the good days if you've got capital at risk you want to know.

John Lilly: 21:38

Well, I mean, yeah, I mean, I think that at some level you to forget about the capital. So at some level, you're trying to say, look, I'm I'm in the boat with the founder. I'm in the boat with the company, I'm part of the company. And yes, I have capital that I put in, I'm trying to turn it into more capital, but really I'm part of the team. That that's how I work, at least. Not everybody's just I mean, other people are like, well. Let's just put money in and let the entrepreneur run. That's not really how I work the best. I like to be involved.

Hannah Clayton-Langton: 22:05

And thinking specifically, John, about your involvement as an investor, you have a background in computer science, companies. So I guess I have a couple of questions. One is like, how much do you think you lean on that? And as a follow-up, like, are all good investors people who the technical nuts and bolts?

John Lilly: 22:26

Uh so I don't know if it's useful or not, is the actual Um, as to how I lean on it, you know, I only know one way to be, and it's to be me. And I'm an engineer and I think like this stuff. Some of the world's best investors are not detectically. You know, Reed was a symbolic systems at Stanford, which in a philosophy major at Oxford. And so like he's like not as technical, and not certainly not a computer scientist. Mike Moritz was a journalist, you know, wrote the book Disney before becoming a VC. I think lots of people were bankers, very successful. And so I think being a good investor doesn't depend on you technical. I think it does depend on you being curious and interested and wondering about what it what's true that you may not think true yet. And so I think curiosity is the main thing. I personally do am interested in the technology. So I fall back and I ask interesting questions about how work and that kind of stuff. But I'm I'm not sure that's the most relevant thing for a venture is going to be successful or not.

Hannah Clayton-Langton: 23:21

And uh investors who don't have any technical background, or at least like not, they might be technically uh adept in finance, right? Which I'm sure is really helpful. But what if it was an ex-banker, would they have like a in-house to help them understand some of the sort of or the engineering challenges? Because that must be pretty prevalent when it comes to the that you need to have with a tech founder.

John Lilly: 23:43

Yeah, I mean, it's depending on depending on the may or may not, well, maybe more technical, depending on part of the sector you're investing in, that kind of stuff. Code is getting a bit less important now with the advent AI and cloud code and that kind of stuff. But I would say that it's hard to have a technical team that would be broad enough and deep enough. And so what you end up having is lots of friends. And so you end up trying to develop relationships just like in your sourcing, which is like you're trying to develop with high-taste engineers and high-taste technical people who you can call and say, Hey, do you know about quantum Or what do you know about caching for inference or whatever? And then you're trying to say, well, if you can develop a of engineers and product people inside the world's most companies in this stuff, you can get to ground truth much quickly than you could trying to be a generalist engineer looks at everything. You know, I'll I'll often call Dylan to ask about things to design or product, or you know, you might call you know a Duolingo, but to talk about education companies or you things like that. So you're really trying to build a network of collaborative people.

Hannah Clayton-Langton: 24:52

Okay, and if we take ourselves back to the framework that out, which I love. So see, decide, win, build. Let's talk about building. Like, how do you ensure a company reaches its potential once have got yourself involved and you're on the board and you've got a long road ahead of you and you you hope it's Like, how do you what's the recipe to get them there?

John Lilly: 25:12

Well, there's no recipe and there's no insure. And and I would say the other thing that's true is as an you have to develop a genuine humility, which is like you matter that much. So I've been involved with Figma for probably 12 years And and I really do try to be Dylan's first call, and I'm independent director now that we're public and that kind of stuff. But Dylan would have been successful whether I was involved or not. I'm very proud of the stuff that I've done, and I know I've changed the course of things along the way, but Dylan always going to run through walls and figure out how to it work because of who he is and the entrepreneur he is. And so I think sometimes you get a little wrapped around the axle. It's like, well, what about my contribution and that kind stuff? But like the truth is, entrepreneurs are the sun, investors are the moon. So investors are only reflected light relative to And I really believe that. And I think that it's easy when you're talking about these amounts of money to get this turned around and say, oh, capital allocation is the main thing, but it's not. Like building the thing is the main thing. And so what I would say is that you're making a decision I believe in this team and this mission and this project. And I'm going to try to figure out all the things that I can do to make that as successful as possible. But I'm involved in the project, it's not my project. The project is run by the team. And so when you start there, then it's like, well, I'm in to the team. What can I do to help? And so for me, I can ask pointy questions. I can I can say, hey, this is great, but can you do it a faster? Like sort of silly like VC things are like, that's great, can you do 10 times that much revenue? Like dumb VC comments to say. But I can also recruit. I can get on the phone with people, I can say, you know, I a lot of companies, and this is the one that really makes because that compared to others, here are their metrics. And so you'd be crazy not to get on this on this rocket ship. Or I can introduce them to other people, or you know, I can do lots of things like that.

Hannah Clayton-Langton: 27:06

I like that. I like that idea of flexing to the founder, flexing to the and the point around humility, I have to say, is not what expecting to hear from from a VC. So you've surprised me uh for the positive there. Um maybe we should bring some of these investment stories to We've kind of teased a couple of examples already. Instagram, Figma. Can you talk us through those in terms of the growth story any others that you think might be interesting for the

John Lilly: 27:34

Of course. So Instagram was uh early in my career, it was two or three years in, and like I said, we were we've been chasing for a little bit, and by the time he raised, he's like, okay, I'm ready to raise because the wheels are coming off they're growing so fast. He came in, he pitched. It was not a unanimous decision inside our firm. We kind of decided to join hands with Sequoia and do it It took about two months to close. So what happens is you decide to invest, you give out a sheet, you negotiate the terms with the founder, you give a term sheet, you sign it, and then you do a bunch of legal diligence. And I mean, like always, the legal stuff takes all the time. So it takes like two or three weeks or two or three months. And so it took us a month or two to close Instagram. We closed on a Thursday and we wired the check on a and then by Monday they announced that they were getting by Facebook for a billion dollars. And so for us, that was a 2x return because we were investing in about about a $500 million valuation. And so it was a 2x return in four days. And I remember getting a message from Dave Swenson, who ran the Yale endowment for years, and he kind of built this model where endowments invest in venture capital firms. And he's like, this is probably the best IRR ever, which you know, um internal rate of return. So the percentage that it grows if you kind of doubling in days is pretty good. If you could double your money every four days, you'd be in pretty good shape pretty fast.

Hannah Clayton-Langton: 28:52

If that compounded over even in one year, then uh then you'd good.

John Lilly: 28:56

You're pretty good. But um, but it's a funny thing because it once a year or so firms have meetings with their limited partners. And you know, I got up in front of our limited partner not so long after that. I said, look, this was a two times return quick. So I'm not gonna apologize for that. I'm I'm proud of it. But this is not the game we're playing. I'm not trying to do two extra turn. I'm trying to do a hundred extra turn or a thousand So the game wasn't to to sell Instagram for a billion. The game we really felt like this was gonna be a multi-tens of billion dollar company. Some level it's a success, and some level it's a And like a lot of things, it's all like that. So, right now, compared to you know, early investments in or Anthropic, everything looks like a failure because those companies have shot up so fast over the years. But for me, it was a good journey and a good a good lesson.

Hannah Clayton-Langton: 29:40

You know, could you have known, John, that it was gonna I could you have done anything different in that instance?

John Lilly: 29:46

No, I mean Kevin was doing all the right things, and this one where you had a very aggressive and smart CEO in Mark who could see a threat coming and figure out what to do it very early. And he just did the right thing. And he like almost everyone told him he was overpaying at the time at a billion dollars.

Hannah Clayton-Langton: 30:09

Imagine now.

John Lilly: 30:11

Yeah, yeah. I mean, Instagram now, I think, is a lot of Facebook's value. And yeah, and so it was in retrospect, very clearly a good And a good deal for Kevin and Mikey, too, because they were very it's a small company, 13 people growing, but they growing very fast. So it's one of those things where it made sense for made sense for Instagram, and it was fine for early investors. Like Kevin said the same thing. It's like you you guys just doubled your money, you'll be Like, no come no crying.

Hannah Clayton-Langton: 30:37

Why did they take investment from you four days before themselves to Facebook?

John Lilly: 30:42

Well, we talked about the gap between when you agree to terms and when you wire the money because there's legal and all this other stuff. And so we had agreed to terms maybe six weeks before that.

Hannah Clayton-Langton: 30:52

Okay, so they were they were just keeping their options open then the timing fell in a way that was I assume that's fairly atypical.

John Lilly: 30:59

No, they were just building the company. They knew they needed capital, they were building the And the thing about compounding viral networks is they fast. And so Instagram went from adding a few hundred thousand a day over the six-week period where we're in diligence, to adding a million users a day because they had just launched Android and it just really inflected in that exact six between when you agreed the investment and got through the Exponential curves are funny because they look like they a knee, but they're they're they're smooth because the whole way. But it turns out they launched Android, the Android app in period, and that really jacked the network effects up. And so everything started going faster. And then I think Facebook probably had been thinking about it earlier because they could see the very early signs of then the numbers became kind of undeniable during that

Hannah Clayton-Langton: 31:50

Interesting. Okay, and I assume the Figma story is a little bit

John Lilly: 31:55

different. So I met Dylan, I said no. Another firm called Index Ventures, uh, guy named Danny Reimer did their seed. And then it took a year and a half of relationship building with me and Dylan and them kind of doing exploration and a product that made sense. And then eventually they said, here's what I think we're do. It was still hard to see the market because in 2014, when we invested, there probably weren't enough designers in the to support a multi-billion dollar company like And so we kind of had a squint to see it. You really wondered about on Dylan and Evan and the team. And it's a it's a sector that design is one that I care about a lot. It's changing now with AI for sure. And so we invested in 2014, and it was still three years that before we really came to market with the product. Whereas Instagram, we invested in the thing, was like a million users a day. Figma didn't really have any customers for a couple years I invested.

Hannah Clayton-Langton: 32:48

And in that time period, you're coaching, you're you're as you said, like you're there on the boat with them. It's just a little bit of a different velocity of journey.

John Lilly: 32:56

Yeah, although at that stage, it's an interesting one like there's stuff you can do, but the team's got to do the work. And there's a lot of like wandering around to try to figure out what the product should be, and a lot of talking to and a lot of stuff that they just have to do. And so for investors, before you've got product in the there's a little bit you can do, and you can help recruit and kind of nudge, but mostly you should leave them alone, in my view.

Hannah Clayton-Langton: 33:20

Okay, so a lot of trust.

John Lilly: 33:21

Yeah, developing trust, yeah.

Hannah Clayton-Langton: 33:23

Developing trust. Okay, and we love to talk about AI on the Tech Overflow and I imagine that's really changed the game for you. Like, did you see that coming long before the rest of us And how has that changed things, both in terms of how you're at companies and also how you're coaching the companies that invested in?

John Lilly: 33:43

Yeah, AI is changing everything. I um I would say that like more has changed over the last like 200 days than I think by any other time in my I'm an old guy, now I'm 55, and so like I've seen a fair of stuff. Like, I just can't remember any time has changed like I would say that two or three years from now ago, it was that LLMs in particular, uh large language models in that OpenAI and Anthropica built on were interesting It was not clear to me that they were gonna be uh, certainly not like they have been. I mean, it was even maybe just a year or two ago, people are debating whether these things could take over search like Google. And it's uh 100% obvious now that they can.

Hannah Clayton-Langton: 34:24

Yeah, well, we talked about this on a recent episode. Like if you'd even said that, as you say, even six months for me, I would have been like, nah. And then now I don't use Google, I go to Chat GPT for

John Lilly: 34:35

Yeah, it's really shocking to me. And and then really, it's the last 200 days since Cloud launched Opus um 406. That was the first thing that the one that could code. And now, you know, I've coded more in the last two months I have in 30 years. Uh I'm building products. And so it's like for me as a product person, it's given so to be able to say, Oh, I think this thing should exist. Let me go play with it for a little while. And it's a shot, it's a complete reinvention of just about in software. And so I teach a class at the business school of Stanford, and we had a class yesterday, and we're like, this is the best ever to be an MBA student because like before it would be, I have this idea and I got to go across the street to and find some computer scientists to try to prototype it me. And now, if you can't prototype, like you shouldn't be a company because like it's it's just right there for you. If you can describe it using Figma Make or Claude, you can see it, you can build it in real life and see what gonna feel like. And then you can go talk to customers and you can get real in the loops. And so that changes just about everything, and it's just to me how fast it's turned. So we're seeing lots and lots of startups. I'm in a new place now called Gigascale Capital, and we're doing sort of energy and hard tech type things. It's a little harder to vibe code like uh a nuclear power or a like electrical transformer.

Hannah Clayton-Langton: 36:00

For now, anyway.

John Lilly: 36:01

For now, yeah. But even those industries, I think, will be are by by what you can do, especially with coding.

Hannah Clayton-Langton: 36:09

And I was gonna ask you about the next quote unquote AI, but this is the thing in however many years that you've seen changed the game, it I mean maybe there'll be another one, but perhaps not for a while. But how do you I guess the the theme there is like what is and enduring? Like, how do you think about other potential big shifts in when it comes to placing sort of midterm bets in companies?

John Lilly: 36:34

Look, I think a lot of people say this is gonna happen or gonna happen, or like it's super obvious that this is happen. And I think most people are don't know. I think the future is fundamentally it's all to play for, This particular generation of AI has been a huge, a of changes. I think we'll see more technological change. I think we'll see more technological advancements that we predict kind of come out of nowhere in the next five years, 10 years, 20 years. I think right now we're in a large deployment phase, which like there's lots of things you can do that really make better experiences, products, whatever, with this of technology. And so we're seeing everyone deploy it all at once, and gonna lead to shortages. It's gonna lead to shortages in compute, it's gonna shortages in power, all up and down the stack. And so that's a lot of stuff that I think about now, which like what happens when you run out of inference? What happens when you run out of power? What happens when you run out of transformers? What happens when you run out of chips or the chips run too hot? And so we're now gonna be in a phase where I think demand is gonna significantly outstrip supply. And so that will cause a whole bunch of optimizations and a whole bunch of like supply chain changes over the next three, four, or five, ten years. And as you're going through those optimization and phases, I think other people will be innovating in sort of less sexy, less interesting parts of the world, and surprise us.

Hannah Clayton-Langton: 38:01

And so I think to solve those problems, like do you mean they'll be innovating to solve? No, okay.

John Lilly: 38:06

No, what I mean is like there'll be there'll be people who look, okay, that's interesting, but like I'm kind of about these other things. I'm kind of curious about quantum or photonics, I'm curious about nuclear fusion or whatever. And that's the best thing about entrepreneurs is like they go kind of like it's like, I wonder about this. And the best ones are like, not I wonder about this thing I saw it in the news yesterday, and it seems like oil be expensive because we're at war with Iran. Like, that's easy to look at and say. The more interesting ones are like, oh, I wonder why, why is it that like we can't solve this problem? Like, let me go think about that for a little while. And the best ones are like working on projects that are and interesting, and like they'll surprise us. So I think this wave has been building for a long time, but it's pretty surprising that large language models have had much ability to really change the world. So I think there'll be more of those things. I think more waves. And so durable, not durable, um, those are aspirational that you try. You and there are some things you know, you you know we'll power, you know, we'll need chips, you know, we'll need and you'll need software. But at some level, you just try to do the best you can, try to figure things out, and bet on the best people you can, and then just help them be as good as they can be.

Hannah Clayton-Langton: 39:23

And are you thinking about sort of future global challenges? Are you seeing much in the climate tech space? Because we do we get a lot of questions about that from the climate tech.

John Lilly: 39:32

Yeah. So the firm I I just announced last week before that I'm uh, advisory partner at a firm called Gigascale Capital. My close friend Mike Sheffer, who is a longtime CTO of he's built this firm that's doing climate, he started as investing, but now you kind of more broadly we're doing energy, supply chain, materials, sort of all the things are important for keeping the world a habitable place. But obviously, data centers and AI are pulling a lot of stuff now. And so we're looking at everything kind of related to that well. So I think there's a lot happening here. I think it's moved from being like, let's say the planet to how do we become more competitive in a challenging world? And so I think that as you move from competition and and on materials and choke points and what are the things you to have some access to to be successful, I think that's where a lot of the interest is coming. But we still have a climate mission too, and we we need the planet cool.

Hannah Clayton-Langton: 40:31

And do you feel optimistic about that with what you can see?

John Lilly: 40:34

I am an I am a technology optimist. I believe that humans almost always create challenges and almost always solve challenges. And so we're gonna create a whole bunch of new challenges with AI and data centers and all that stuff, and I think we'll them.

Hannah Clayton-Langton: 40:48

Okay, that's reassuring. And um, let's finish with another great story if you've got Is there anything else you can share? Do you have a worst investment, for example?

John Lilly: 41:01

Well, I have lots of worst investments, like a lot of my went to zero. We we just shut down a company last week. So those are always hard uh because you know, you're in the in the boat, you're with with the entrepreneur, and it's for them than as an investor, obviously. So I've got lots of those. Um, they're all kind of interesting stories and not stories, you know, hard to hard to know. I would say I just think the most interesting things are the things that surprise you. Like Instagram really changed the world, Figmas really the world. You know, Duolingo, which I passed, I'm on the board of now for five years, probably. But I passed on Duolingo's business, probably, which didn't invest in them. They pitched me in. I didn't invest in them probably five times at Greylock I just didn't think the business was very good and very fine. But you know, we built a relationship over time, and Luis called and said, Hey, we're building a bigger board, you be on it? And so, like, you I think the main thing I would say to anyone is like relationships are the thing, like the companies that I turned down or turned down me, or you know, life is long, and like feel the best thing about Silicon Valley is you mix and remix, and there'll be new people who come up people who do stuff we haven't met before. And like, if we can all just try to focus on like how do we help each other be good and interesting and do interesting like things tend to work out.

Hannah Clayton-Langton: 42:16

Okay, and if the listeners are interested in seeing more, us back to that framework, you obviously live in the valley and um you're exposed to that by nature of of course your job, but also I just imagine that there's a lot more of that in the with folks who live there. But if you're if you're not in a hub of of development, like are there newsletters, are there are there people that you can Like, how can we stay turned on to the changes that are and the exciting things that that might be happening?

John Lilly: 42:45

A lot of the interesting work is still happening on what I Twitter or what people call X now. I wish it was a little more politically palatable than it I think it is, but um but a lot of people are there, and I a lot of the a lot of the action happens there, and I still look at it most days. The great thing about now in 2026 is most people are doing all this experimenting in public. And so you can go read people's blogs about, oh, I'm using Code for this, or I'm using Codex for this, or I'm using for this. And I would just say read as much as you can and try not to get super whiplashed about what's possible or what what release any of these labs came out with yesterday. But mostly people should think about what's the product and what's the thing that they want to see in the world. Like, oh, I think I might want to do this, and then try to out how to build it because like mostly the tools are up now to let you build stuff. Now it's becoming more about what's your intention? What do you want? Like, what do you want the world to look like? Then you can figure out the how.

Hannah Clayton-Langton: 43:41

Okay, John. Well, thank you so much for your time today. Uh, on behalf of me and the listeners, that's been super very insightful, and also quite inspiring. I need to go and figure out which problem I'm gonna solve with my uh with my new relationship with Claude Coach.

John Lilly: 43:54

That's a good thing to think about. I've had a really good time. Thank you so much.

Hannah Clayton-Langton: 43:57

Well, and when I come up with that idea, I've got your email So I We'll be in touch.

John Lilly: 44:00

That'll be great. I'll watch for you.

Hannah Clayton-Langton: 44:02

Okay, super. Thanks, John.

Hugh Williams: 44:03

Well, thanks to John and thanks to Hannah for a great I hope you enjoyed it as much as I did. The stories about Instagram and Figma were two of my from this series. If you'd like to learn more about the Tech Overflow we are of course available on socials. You can find us on X, you can find us on Instagram, TikTok, YouTube Shorts, and LinkedIn. We also have our own website, TechOverflowPodcast.com. And if you'd like to help the show, we'd love it if you'd this episode and the podcast with your friends, and family and get the word out about the show. Next week, Hannah and I will be back for a season wrap, and that'll be the end of season two. We'll look forward to seeing you then.