E54: Trae Stephens on Founders Fund

**Erik Torenberg** (0:05)
Welcome back to Turpentine VC, a podcast where we discuss the art and science of building successful venture firms, VC to VC. Today, we revisit one of the best and most referenced episodes to date. An interview with Trae Stephens, general partner at founders Fund, and one of the co-founders of Andoril. Trae reflects on the iconoclastic DNA of founders Fund, why having no process is a differentiator, and the future of the firm. Let's dive in.
Welcome to the podcast, thanks so much for joining.

**Trae Stephens** (0:38)
Thanks, Erik.

**Erik Torenberg** (0:40)
So Trae, you've been at founders Fund for quite a while now, right? How long?

**Trae Stephens** (0:44)
Almost a decade? Yeah, I started in January of 2014, so coming up on 10 years.

**Erik Torenberg** (0:49)
So founders Fund has done phenomenally well since almost the beginning, almost a couple decades ago, perhaps. And it's not obvious why, because the people who've done super well at founders Fund, they weren't household names necessarily before. There's something about the founders Fund DNA that produces phenomenal returns. And I want you to reflect over the past couple decades, what is it about how founders Fund operates that has led to it being successful fund after fund after fund?

**Trae Stephens** (1:18)
I think at its core, it's all related to the debate culture, like the openness of conflict and conversation internally.
I had no idea what Venture Capital was really. When I started here, I was at Palantir at the time, when Peter asked if I'd be willing to come over. And when I started, I have no background in finance, had never made a personal investment of any kind, but I think had had a lot of these back and forth debates with Peter on a variety of things. And it turns out that that was the most important characteristic that I could have coming in, is like you have the ability to develop conviction and the ability to defend that conviction in front of groups of other very smart people. And the practical aspects of venture kind of came later. And it turns out they were probably a little less important than kind of the core conviction building process.

**Erik Torenberg** (2:17)
My sense is what made founders Fund successful early on was just some outsized bets, i.e. like very concentrated portfolio and just a massive winner like SpaceX, Airbnb, a few others that really like catapulted the brand and reputation. Like that this wasn't just Peter's thing, but this is like a real institution that can produce great investors.

**Trae Stephens** (2:38)
Yeah, I think some of Peter's kind of core hypotheses about the venture tech space that he built out as part of zero to one as well. The book that he wrote back in the early scenes.
Are about concentration, so you should really double down on your winners. Because venture is a power law distribution. The best companies tend to return the vast majority of all fund returns. And so you want to have as high of ownership as possible and the biggest winners in the fund. And so we certainly spend a lot less time than most funds, kind of like shooting out capital in smaller dollar amount increments like you would for a typical seed stage or angel fund. And we do a lot more highly concentrated bets in Series A, Series B to make sure that by the time that you have a SpaceX or a Palantir or an Androl or a Stripe, that you've acquired as much ownership as you possibly can.

**Erik Torenberg** (3:38)
Yeah. We had Ben Horowitz on the podcast. And he talked about how Andreessen has 500 people, etc. They've invested a massive amount of services that makes it hard for other firms to compete to win a deal against them, in his words. What does founders Fund believe about the world that's different about how A6C believes about the world that leads you to take the strategy you've taken?

**Trae Stephens** (4:00)
Yeah. I mean, to be fair, I love Andreessen and Horowitz. They're a large investor in Androl. I would be the last person that would say anything bad about them. Our pitch is very, very different than theirs. Our pitch is that we'll be the least annoying investors that you deal with. We're going to be very hands-off unless you ask us to be hands-on. We will be there to be reactive and supportive in whatever way we can in those moments. But by and large, we're going to give you the space that you need to operate. I think this goes with the original thesis of why we're called founders Fund, is that we wouldn't invest in a company if we thought we could run it better than the founders.