Deep Dive with Greg Sands

Intro: Welcome to the Daily Bolster. Each day we welcome transformational executives to share their real- world experiences and practical advice about scaling yourself, your team, and your business.

Matt Blumberg: Welcome to the Daily Bolster. I'm Matt Blumberg, co- founder and CEO of Bolster. Today we are going in deep with Greg Sands. Greg is the founder and managing director of Costanoa Venture Capital in California. He is someone that I have known and worked closely with for over 20 years, both on the Return Path Board and here at Bolster. Greg, welcome to the Daily Bolster.

Greg Sands: Thrilled to be here.

Matt Blumberg: One of my favorite stories about you is that you were, I believe, the first nonengineering team member at Netscape. That is the correct characterization?

Greg Sands: Yes, I was the first to be hired. There were a couple that were hired after me but started before me, if you want to be real...

Matt Blumberg: First to be hired. 1994, dawn of the commercial internet, not even the dawn, pre- dawn of the commercial internet. Probably half the people watching this don't even know what Netscape was, but Netscape brought the browser to the world and Marc Andreessen invented, what was it called, Mosaic?

Greg Sands: Mosaic.

Matt Blumberg: Mosaic and turned it into Netscape. I would love to hear reflecting on 20, however many years, 28 years, 29 years, and all that's happened to the world because of the internet, because of browser number one and everything that came from it. How do you think about that piece of your experience in the rearview mirror? You have to tell a good story about Marc or Ben or Jim Barksdale, or Jim Clark or something.

Greg Sands: Sure. I will say, so I don't think about it that often, but it's unequivocally the foundation on which my career has been built. It was a launching pad, for sure. I think we knew that we were in an extraordinary place at an extraordinary time. I was the first person hired and on my third day of work, we showed up on the cover of Time Magazine. No, maybe Fortune Magazine is the coolest company in the country. 14 months later we were public with a$ 8 billion market cap having done$ 80 million in the first year of revenue, so it was quite something. There were of course, no online stock trading applications at the time because we were barely selling books. But using the phone at Charles Schwab was the low cost way to buy and sell stocks. If you dialed the 800 number on that day, it said, " Welcome to Charles Schwab. For the Netscape IPO, press one." It so dominated everything that was happening, it was pretty extraordinary. But I would say there are moments of extraordinary things happening in the technology industry. There are times when you know you're in one of them and there are times when you think you might be, but you're not. There are times where one might not necessarily know that it's as foundational a period. It does usually take two to five years to figure that out. To me, one of the most interesting things is having been part of something that was so foundational, so explosive, so out of the ordinary. Then with that lens trying when, for example, the large language models and ChatGPT comes out. Is this one of those absolutely foundational moments or is it not? The iPhone, was it one of those absolutely foundational moments or was it not? You and I are old enough to remember that there was a moment where people thought push technology was that foundational and PointCast peaked about 12 months later.

Matt Blumberg: Yeah. PointCast, with the ultimate solution looking for a problem, right?

Greg Sands: Exactly.

Matt Blumberg: You have to have a good Marc Andreessen story. You probably have hundreds of them, but one from early Netscape, not a16z, not everything he's become. What was it like working with him when he was 23 and inventing something that changed the world?

Greg Sands: Well, okay, there are probably two that show up, I'll do them quickly. One is Marc's office was stacks and stacks of paper. I don't even know what the stacks of paper were. Then where there wasn't paper, there were boxes of honeycombs. The company was formed as Mosaic Communications. There was the beginnings of us saber- rattling on an intellectual property or trademark lawsuit on Mosaic in particular. We had been trying to come up with a name originally just for the browser product. I'd run brainstorming sessions with the engineering team and the like, and nothing was working. At some point, the late Mike Homer and Jim Clark and Marc walked by and grabbed me and pulled me into Marc's office. They said, " Okay, the trademark thing is real. We have to do something." We've been thinking about it, we've been working on it, and it literally just popped into my brain, this is the way you see the net. How about Netscape? Everyone, after all this stress looked around, they're like, " Yeah, that's pretty good. That's probably it." We all walked out, so that's one. I think the other, I saw a picture recently. One of the Netscape founders had forwarded to me a picture of a group of us in Jim Clark's swimming pool, which would've been the summer of 1994. The company was less than two months old. Marc really wanted to throw John Doerr in Jim Clark's swimming pool. I was the person he roped into doing it. At a moment when John Doerr was unequivocally the best venture capital investor in the world, and Marc was 23 and I was, I don't know, 29 or something, we went over and we picked up John Doerr, and we threw him into Jim Clark's pool and we lived to tell about it.

Matt Blumberg: You did. That one I haven't heard. I heard about the naming, but I'd never heard that one before. All right. Then my last Netscape question, Jim Barksdale famous for saying after saying, after saying, after saying. I have 10 of them running through my head. What's your favorite one?

Greg Sands: I think my favorite one is when a bear fights an alligator, who wins depends on the terrain, which means you got to pick the terrain. If you're the startup, you're going against the giant, picking the terrain, picking the battle is as important as anything else.

Matt Blumberg: I've actually never heard that one before. That is great. When a bear fights an alligator, who wins depends on the terrain. Okay. All right, let's fast- forward. You join Sutter Hill as associate or senior associate or principal. You get up through the ranks, you're a partner, you're investing. You're at one of the most venerable firms on Sandhill Road. You have great portfolio, and then you leave and start a new venture capital firm from scratch. You leave it all behind. What was the spark? I knew you're close with the guys at Sutter. I knew all of them. Tremendous, high- quality people.

Greg Sands: Good human beings.

Matt Blumberg: Great human beings. Yeah, what was the spark? Let's start with that.

Greg Sands: To me, the big thing was seeing that the landscape had changed. The easy way to say it is with the rise of cloud computing, it had gotten easier and less expensive to start a business than ever. The response of the major venture capital firms was to increase themselves four or 5X in size. In'98, '99, 2000, every firm that you think of was a$ 300 or$ 400 million early stage fund with only one strategy in an early stage fund. Now, many of them raise$ 5 billion a year. That mismatch between what the market needed and what the big firms were doing, is the one that created the opportunity. The thing that was clear is that there had been an early group of seed funds, but the seed funds were mainly B2C, focused on Internet 2. 0 companies. They were mainly what I call Johnny Appleseed. It isn't a bad strategy, but it isn't my preferred strategy. The idea that in the enterprise environment doing foundational, old- school, value- added, early- stage, concentrated investing, just it wasn't being done. That to me, was the fundamental spark and the reason to go do something different.

Matt Blumberg: By the way, you and your firm have stayed true to that focus through now 12 years, 10 years, 10 plus. Talk a little bit about how you started the firm. I remember you and I were sitting at lunch at Fiesta Del Mar and you told me you were spinning yourself out. I was like, " What the hell is he talking about?" To this day, I've never heard of a venture firm created in the manner in which you created Costanoa. I would love to hear a little bit about that.

Greg Sands: Sure. I was fortunate to be able to take portions of Sutter Hill's ownership in a handful of companies, including Return Path and Intact, and Datalogics and Demandbase. Those were all places where I had led the investment. Basically, use that as the seed corn for Costanoa to be able to say to LPs, " Look, here is an example of my work. We get to benefit from some of it mid- stage and then we're going to go do a bunch new." The most important thing is that I was able to do it in part because of my relationship with the Sutter Hill folks. In part, because of the principles of the firm that really continue to inform the way I work, which is you communicate directly, you act honorably in every circumstance, and you aim for win- win. If you do those things, lots of things get easier. In this case, look, I had a bunch of economic interests in the funds and I said, " What I really want is to have more of the stuff that I've done. I'm willing to eat what I kill. I'm happy to do it in a way that is win- win, that works for everybody." As a result, one of the partners, the esteemed Jim Gaither and I sat down in a room and he said, " Don't negotiate with me and don't lawyer up. Literally, do not hire a lawyer, but if you and I can work this out, I'll go to bat and I'll make this happen for you." The whole agreement was on two sheets of paper. It was ratified by a common lawyer who was the firm's counsel, but I had developed trust in. With that, I was able to walk off into the world and raise a substantial first fund to create Costanoa as we know it today.

Matt Blumberg: That says so much about the culture and values at Sutter Hill, obviously yours, but so much that you were able to do that on essentially a handshake, a lightly papered handshake.

Greg Sands: Absolutely. Absolutely right. As a result, I have great respect for Sutter Hill. In fact, what they've done even subsequent to my departure is more impressive than what they'd done before. It's really quite extraordinary, but also have tried to make sure that those principles show up in our work, including and most importantly, they show up in our work with founders. What we want to be is to be someone who is trusted enough, both by integrity, but also by judgment and trust in transparent communications. That we can be a person in the boardroom where people can be uncertain or share bad news, in spite of the fact that we are an investor.

Matt Blumberg: Right. Actually, that was going to be my question. Most venture capitalists are not founders, right? They work at a firm. Obviously, someone had to start the firm at some point. But the overwhelming majority of people who are investors and board members from VCs are not founders and you are. The question is, how does that change the way you like to show up, either in a boardroom or even just sitting with a founder?

Greg Sands: It has affected the way that I work and invest, for sure. I think it is important to say it has to some extent always been the case, that I think of it as a relationship business. That what you and I have been able to do, and Rob Reid and I were able to do, and Doug Valenti at QuinStreet and I were able to do, is what I'm doing now with Satyen Sangani at Alation, for example. But layered on top of that, is that it's made me much more empathetic for founders. Look, the fact starting something is hard, being ultimately responsible for it is hard. Raising money is hard every time, but it's especially hard the first time. With that, I think what the empathy for that has led me to do is one, to be faster and clearer and more direct with founders during their fundraising processes.

Matt Blumberg: By the way, huge. Absolutely huge to be able to be fast and direct, even if the answer's no, especially if the answer's no.

Greg Sands: Right. I've gotten way better at that. I think as a board member, I have gotten more direct. I think by instinct, I'm a diplomat. I am optimistic and therefore, want to encourage founders and management teams to have success, but they also benefit from hearing what I actually think. I've come up with ways to take the edge off of it, but still say, " Hey look, that doesn't quite compute, those pieces don't add up. Let's take it offline and go work on it, but I'm not sure that this is the plan that you ultimately want to end up with." Those, I think, are the two biggest things that have affected how I work with founders. Now, it's also the case that being ultimately responsible and being the person who's got to lead the firm, has meant I actually say no to many more things before I take a meeting.

Matt Blumberg: You have to. All right. Let me ask you the flip of that question. How has working with all these founders and CEOs over the years influenced the way you run the firm? Venture capital firms not known for being well run organizations. Not that they're not good investors, but they typically don't invest much in their own infrastructure.

Greg Sands: Yes. I think it's fair to say that most venture firms are very poorly run as organizations, not even necessarily as businesses, but as organizations. I think for me, the big thing is that the thing about being the person in charge of being the founder, and it's been true for you as CEO, is you have to make all of the decisions and they have to work together. As the landscape changes around, you need to make all of these subtle decisions. In the venture capital case, the question of which sectors, which stages, which themes, what check size, what ownership level, what entry point, what people process, what fund size, all of those go together. I think one of the places where we actually get a great deal of credit from our LPs, is that all of those things make sense. They evolve a bit every year as the landscape changes and we learn new things. But then they make sense the next year too because we've tied the pieces of them together. I think that's the strategy part of it that's easy. Then the question is how do you actually manage the organization, and hire and develop the people and manage the process in order to achieve that? I think honestly, I look at us and I think, " We are somewhere between competently run to pretty darn well run organization, in terms of how those mechanics work." We tolerate a little bit of chaos. We use a little bit of process. The average venture firm is incredibly poorly run and there's a lot of wasted energy. There's a lot of politics and conflict. There are a lot of places where people are out managing their own careers, rather than doing what's best for the firm or doing what's best for the portfolio companies. That stuff is just not tolerated here.

Matt Blumberg: Is there a firm you look to as the gold standard? Like you say, you're moderately well run, decent. Is there one you're like, " Wow, I aspire to be like X," or is there no X?

Greg Sands: There is no X.

Matt Blumberg: There is no X. Maybe Costanoa is the X.

Greg Sands: Well, when I say there's no X, I don't know definitively that there isn't somebody who's really well known.

Matt Blumberg: There's no one that's well known for it.

Greg Sands: That's right. It's very hard to see inside of other firms. There are a small handful of places where you've got a close enough relationship that you actually get a real answer to that, rather than a bunch of chest thumping, which is not useful at all. But I'll also say, if you look at if one inaudible that Andreessen or Sequoia is really well run. They're operating on a scale which isn't relevant to what we're doing, and it isn't relevant to our strategy. By definition of fund size, they're doing something that look, it's just go big or go home every day for every company at all times. It's just not the way we have to run. We really had to make it up ourselves. The thing that I think has been helpful is to basically take the basics of a growth mindset and say, " Okay. Nobody knows exactly how to do this, so we're going to sketch it out. We're going to come up with a theory. We're going to put it in practice, and then we're just going to keep getting better every day."

Matt Blumberg: Yeah. Look, when you have$ 5 billion under management, the management fees alone give you plenty of infrastructure to play with. It is a different game.

Greg Sands: Well, and by the way, that's half of what Andreessen raised last year.

Matt Blumberg: Last year, right.

Greg Sands: AUM is five or 10 times that.

Matt Blumberg: Yeah. All right. Let's talk about the companies that you've invested in and the CEOs that you've backed. When you think about some of your most successful investments, you talked about Rob Reid from Intact, Satya at Alation, obviously still a work in progress there, maybe Doug Moretti. What are the things that those CEOs have in common that drove scaled success? Not just success like, " Hey, I built something, it was a single, it was fine." But what are the things that those CEOs have in common that drove that, not necessarily hyper- growth? Because a lot of B2B companies don't know what hypergrowth is. It's like slow, steady progress. But what drove that success?

Greg Sands: By the way, in B2B environment, I think you can have excellent growth. You can have 100% growth sometimes even at scale, but you're not going to have the Facebook moment or the like where you've just got a trend that takes over the country and in one fell swoop. I'll talk about my own pattern that I've observed because I think it sometimes is a little different. The number one is just drive and tenacity. Many investors will say passion, and I actually quite dislike that word because Adam Newman has passion, right? But you got to show up every morning. You got to keep your feet moving, you got to grind it out when it gets hard, and it's always going to be a time when it's hard. The drive and tenacity to me is thing number one that I see and that I'm looking for. The second is I'll phrase it as intellectual curiosity, but it's they have to be deeply interested in the customer. It's not because they necessarily grew up thinking about this customer, but they got to care enough that they're trying to solve the problem. As they're seeing as it evolves different facets of the problem, and they care and they want to know and the like. Now, that also shows up in terms of building the organization. I'll quote Satyen Sangani from Alation in this, it's been four years ago, but I remember him coming to me in December, probably December of 2019. He said to me, " I think I finally mastered being the CEO that the company needed in 2019." I realized going into 2020 that needs a completely different CEO. It needs something completely different from me, and I'm going to have to shed all of that and molt into a new person.

Matt Blumberg: By the way, he didn't even realize there was a pandemic coming at that point.

Greg Sands: Truly.

Matt Blumberg: Everyone needed to be a different CEO in 2020 and no one knew it.

Greg Sands: But look, the people who can build things of scale, if you think about the classic hero's journey, they are transformed by the process. They have to be signed up to the personal transformation that it takes to be the CEO and the leader that the company needs as it grows. Then the last thing that I'll say is they need to be system builders, right? We talked about this a little bit before in the context of me leading Costanoa. This is frankly not a very complex organism, and it's not managing it at very big scale, but the organizations and functions break every 18 months if you're continuing to grow. The market landscape changes around you and you've got to reorient. But that level of constant observation of the market and the company as machinery, and the constant tinkering to get it right and to keep improving, is the thing that I've seen make the difference between people that make the turn and people that don't make the turn.

Matt Blumberg: Yeah, that's very well said. Let's pivot to boards, and this will probably our last topic, although I have a couple different questions around boards. The same question, the parallel question to the CEO question. When you think about the best boards that you've been on, which might be those same companies and might not be those same companies, what makes them great? Or the flip, when you think about the worst boards you've been on, what makes them problematic? What's the difference?

Greg Sands: It's interesting. I would say some of those companies, and we'd say the same thing about Return Path. I think I have time and time again, been on boards where not just the CEO, but the other earliest investor or investors look around and say, " This has been an extraordinary experience and is the seminal experience of my professional life." That happens because of great people. When I say great people, it's not because they're the smartest. It's because they show up having read the board book, they've been thinking about the company in between board meetings. They have an interesting combination of judgment and insight. There are some people who are the glue people, the wisdom that ties it together. I probably fall more into that category. There are some people who are the sparks of unusual insight. We worked with Fred Wilson and Brad Feld at Return Path and both of those are probably in that category. Then they communicate well and in communicating well, I mean are direct and clear about what they think. They don't take up too much airtime, and they don't pick unnecessary fights or have to win every battle. It doesn't take extraordinary to be a great board member, but it really is one where I'd say blocking and tackling really well and being dedicated to blocking and tackling is most of what it takes. Now, what are the worst boards? The worst boards are with look, it's the caricature of venture capital board members. Show up late or don't show up, aren't paying attention, haven't read the board book.

Matt Blumberg: They're doing email the whole time.

Greg Sands: Doing email the whole time. By the way, it's ChatGPT as board member. Often wrong, but never in doubt.

Matt Blumberg: At least I know now we have our poll quote from this one. Yeah. Often wrong, but never in doubt.

Greg Sands: Yeah. I think it is the case that board members or investor board members who are often early in their careers or often don't really come from working inside companies, I think don't quite know how hard it is to actually make things change inside an organization. They'll show up 30 days later or 60 days later and say, " We talked about this. Why haven't you done it?" Yet there's all of this machinery that actually needs to be moved and people, and role scope and the like. I do think that just having some empathy for how hard the job of startup CEO is makes a big difference.

Matt Blumberg: Yeah, that's for sure. All right. Last question about boards that I've been thinking a lot about lately is the future of the venture backed board or the future of venture backed board meetings. If we wind the clock back five years, you're in California, Return Path was based in New York. You got on a plane a few times a year to come to New York for a board meeting. We had a board dinner, we had a drinks' thing with the team. We do half a day meeting, maybe you'd tack on another meeting or two in New York, you'd fly back to California. It was heavy lift, worth every minute of it, I'm sure, but heavy lift. But that's how all board meetings were. Firms concentrated their investments in specific places or they had multiple offices so they could do that. The pandemic obviously broke that. For two years, everything was shorter and on Zoom, and probably companies were the worst for it. Maybe things were moving into some hybrid mode right now, but how do you think about that? I guess the fine point I'll put on the question is I know for partners at a venture capital firm, one of the big limiters is how many boards you can sit on. Your investment capacity and your capacity to be a productive advisor to a CEO is limited. Did the pandemic change that? Now everyone's capacity is up 50% to 100% because you don't have to fly across the country and meetings are shorter and on Zoom. Is that healthy, is it not healthy? Where's that all going?

Greg Sands: It is definitively the single biggest limiter on venture capital activity. I think it is right to say it is so much more efficient that many board meetings will be remote. Companies will say, " We'll have one or maybe two board meetings a year that are face- to- face where we'll do a board dinner."

Matt Blumberg: Which may be enough. That may be enough to do a couple. Yeah.

Greg Sands: Yeah. It is, I think, like in other work contexts, I'd say it's way more efficient and not quite as good, but it's twice as efficient and 20% less good so you have to do it. I think for sure the pandemic was a catalyst for it, but so were zero interest rates, right? In the end, many VCs are deal junkies. Their whole thing is they're just hunting. They're just hunting the next deal. They may show up for a board meeting, they may not, but they're just hunters. The zero interest rates and the explosion of fund sizes, what I observed 11 or 12 years ago is now metastasized. Again, can I deploy all the capital that firm wants me to deploy is the question? Therefore, the board meetings are just they're the tail that's getting dragged around. What we pride ourselves on trying to be the foundational board member in and around a company, to have the time to work with the company and know it well. To be trusted enough to be the first call and to have enough capital to stay with the company over time so we don't abandon ship two years later. Now, the consequence of that is that's a design decision, it's a strategic decision and it drives limits on fund size. But it takes a choice to do that, and very few people are choosing to do it. To me, the real question is, does the reduction in the amount of capital going into the ecosystem that's likely, because of higher interest rates and lower public markets and the like, does it slow everybody down a touch? I think the answer it is likely to slow everybody down a touch. But unfortunately, I think it is not going to be the case that most venture firms and therefore, most venture capitalists go back to saying, " Actually, the most important part of my job, is being an extraordinary board member and partner to CEOs." I wish it were true.

Matt Blumberg: Well, that's a trend that you and I can pick up another time.

Greg Sands: Indeed, I would be happy to.

Matt Blumberg: Greg Sands from Costanoa Ventures, thank you so much for being here.

Greg Sands: It was a pleasure.