518. The Power of Founder Mafias, Why Venture is Bifurcating, and Lessons from Good Strategy, Bad Strategy (Ross Fubini and Manish Patel)

Nick Moran (0:00)

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Now on to the episode.

Manish Patel (0:24)

Welcome to the podcast about Venture Capital, where investors and founders alike can learn how VCs make decisions and reach conviction.

Nick Moran (0:32)

Your host is Nick Moran, and this is The Full Ratchet.

Ross Fubini and Manish Patel join us today from the Presidio. Ross and Manish are managing partner and general partner, respectively, at XYZ Venture Capital. Ross is a Midas-Lassitte investor and was an early backer of Anderil, while Manish joined Google before his IPO. He's taught at Stanford School of Engineering and has been a VC for over a decade. XYZ has backed companies including Anderil, Peregrin, Apex, Cape and Chapter, and has backed 40 plus Palantir-sourced companies, including three in the last quarter. Ross and Manish, welcome to the show.

Manish Patel (1:19)

It's great to be here, Nick. Thanks for having us.

Ross Fubini (1:21)

Yeah.

Nick Moran (1:22)

It's good to see you both. Ross, let's start out with you. So XYZ turns 10 this year.

Give us kind of the quick two minutes on what was the original thesis and what part has survived the past decade.

Ross Fubini (1:35)

You know, it's all just overnight success every day up and to the right.

No, it's really been quite a sojourn. As you said, you know, coming up on 10 years. You know, most interesting, you know, the original premise of XYZ actually ended up planning out as being correct. So back in 2017, if we had talked about XYZ and I would have been begging you, like, hey, you got 10 bucks. I'm doing a new venture fund. The premise would have been there is this little data company called Palantir. You don't heard of it unless you lived in downtown Palo Alto, but it is full of the best, most talented young people in the world. And I'm going to back people coming out of that ecosystem. And that was the core idea. And the long story short of it is that it's been incredibly successful, not just because, you know, Andrew Peregrine, Chapter, Apex, Cape, others were all backed by Palantir founders.

But those folks really were the beginning of starting several really interesting waves of technology in the public sector, in defense, in space, just these really, really transformative categories where those companies existed, other companies like them have existed. So it's ended up being a really, really successful journey to go build out here. We just now, over 130 companies, billions of dollars to deploy and a lot of fun in the way.

Nick Moran (3:19)

So were you an early contemporary or friend of Peter Thiel, Alex Karp, their unique individuals kind of build companies in a different way?

Ross Fubini (3:33)

Yeah, definitely Palantir was built in a very unique way. It's one of the things that was most compelling about it is its culture. The history of Palantir was largely written by three people in the earliest days, a guy named Sham Sankar, another CTO, Aki Jain, the president, and a guy named Bob McGrew. Bob later went on to be Chief Research Officer for SAM at OpenAI. Those three folks really ran the business along with Karp and the original founding team.

I introduced Aki to Sham.

Palantir then and now was an incredible consumer of expertise, consumer of wisdom. And it was a real learning machine kind of culture. And I was just fortunate because I knew a couple of things. I've been around in the Valley a while, now a long while. And I would go to meetings with them, and we work on pricing. And one meeting, the next meeting, show up, second meeting, and the team would be like, well, we tried one idea, it's great. We tried the other day, it sucks. We're going to get to the third. What else you got? It was a constant consuming of like, not more than insights of ideas and experiences from outside. And that learning machine is what was really attractive. And so I got to be part of that quite happily as an advisor, and later investor. And but it was that intimacy with the company, which only had all these talented people. Because then and now, Palantir is full of these young people that basically get, this term forward deployed was created there. What does that mean? Take young, talented person. Maybe they were a student of Manisha's who just graduated. So they're eight years old. We're going to take you out in the world and be like, great, you're going to go to pick an insurance company, a bank, a part of the government, and go find a big data problem that Palantir's foundry system is going to be really useful to solve. And try and do that in six weeks. We'll see you later. It turns out that kind of culture is incredibly good. It's just a crucible for creating entrepreneurs. So you get companies like Chapter. Chapters are really boring, incredibly important company.