Join Corey and Adam as they explore the pros and cons of taking venture capital, why Adam believes VC money unfairly gets a bad rep, how great 1Password is and why Adam believes the company’s $200 million raise makes sense, when to take VC money and when to turn it down, how expanding from a tool that performs a specific function to a platform business can be a scary thing for end users, how not all VCs are alike, how “bad founders” exist, why the people who tend to dislike venture capitalists usually aren’t the ones making the tough decisions, and more.
Adam Jacob is a co-founder of Chef Software and the creator of Chef. He has over a decade of experience designing, building, and managing large production systems. Adam is Chief Executive Officer & Co-Founder of The System Initiative.
Before Chef Software, he founded HJK Solutions, an automated infrastructure consultancy where he built production cloud infrastructures. Adam has been responsible for large production systems, internal corporate automation, and Sarbanes-Oxley compliance efforts.
- Twitter: @adamhjk
- LinkedIn: https://www.linkedin.com/in/adamjacob/
- Personal site: https://sfosc.org
- Company site: https://www.systeminit.com
TranscriptAnnouncer: Hello, and welcome to Screaming in the Cloud with your host Cloud economist Corey Quinn. This weekly show features conversations with people doing interesting work in the world of Cloud. Thoughtful commentary on the state of the technical world and ridiculous titles for which Corey refuses to apologize. This is Screaming in the Cloud.
Corey: This episode is sponsored by InfluxData. Influx is most well known for InfluxDB, which is a time series database that you use if you need a time series database. Think Amazon time stream, except, actually available for sale and has paying customers. To check out what they're doing both with their SaaS offering as well as their on premise offerings that you can use yourself, because they're open source, visit influxdata.com. My thanks to them for sponsoring this ridiculous podcast.
Welcome to Screaming in the Cloud I'm Corey Quinn. I'm joined this week by Adam Jacob, best known, I suppose, as the co-founder of Chef Software and the creator of Chef. These days he's the CEO and co-founder of The System Initiative, but today we're here to talk instead about a fight we picked on Twitter.
Adam, welcome to the show.
Adam: Hi, Corey.
Corey: So as of the time of this recording, which in November 15th, yesterday it was announced, or possibly the day before, I saw it yesterday, that beloved password management in the Cloud, there's the Cloud angle, company, 1Password received from Accel partners, or Accel, whatever they call themselves these days, a $200 million investment. Have I nailed the salient facts so far?
Adam: Feels good to me, yeah.
Corey: Excellent. I'm sure it feels good for them. And my immediate shoot from the hip take on Twitter, which is why they call them hot takes and not lukewarm takes or reasonably room temperature takes.
Adam: More like incomplete takes.
Corey: Exactly, it was extremely incomplete and... But my take was, "Okay, that's unfortunate, because now to receive the typical VC 10X return on something like that, they're going to have to build something monstrous." And your criticism of that, or I guess, response to that, which is valid in some ways, is that it was a lazy take, and it was. I was lying on the couch when I tweeted it.
Your position was that the same leader who was there last week is still there this week, and that if it becomes something horrible, it's not VCs that are directly to blame, so much as the leaders of the company. And that was a fascinating enough position that I couldn't immediately refute it and figured, let's have a talk.
Tell us more. I'd love to hear where you're coming from on this.
Adam: Well, yeah, so look if you don't know who I am, and Corey gave you a little of my background, but I wrote thing called Chef and then I co-founded a company with some lovely human beings called Opscode, later called Chef, and now I've done it again, I have a company called The System Initiative. All of those companies, both of them... Took a bunch of capital, I started a couple of businesses before I started ones that took venture capital. I started a consulting business, we had a body shop for a while, long ago, and the thing for me about right this second in history, is that it's a very, very hip moment, in particular, at least in my Twitter feed, it's particularly hip thing to just be like, "Venture capital ruins companies."
It just happens sort of instantaneously, kind of consistently. And so I was kind of reacting to that part of your tweet, whether just sort of ambiently I had seen a lot of that sentiment. In this particular case, it's... I think it's... there's a couple of pieces there, right? So one is the idea that when companies that venture capital, they are somehow, I don't know, ruined. And most often, I think that take comes from the idea that venture capital requires a return, which is true. So they're not giving you money for nothing. The deal is they give you money on what is actually pretty great terms, most of the time. Certainly, it's not a loan. On the hope that you create a business that's worth more than they invested.
And ideally, they'd like that number to be a lot more than they invested, but it usually isn't, right? So their own math, and the way they talk to their own customers, has that number being relatively small in terms of the ones that win, right? What people tend to believe that there is... Once you take that venture money there's some kind of Svengali like backroom that gets created, where they take otherwise pristine and virtuous founder/managers and turn them into groveling, money hungry shit birds, who are going to destroy the thing that they loved or that they cared about, because there's this person that gave them money, who wants a bunch more money. And I just...
My experience is that that's just not what happens, and not how it happens, and that's not only my experience, personally, but I talk to a lot of people who are in startups, who are starting startups, I do due diligence for the venture capital folks that I like, I talk to a lot of people. And when we fail, we most often fail because management screws it up, because the people that you like and love, they just made bad calls, and usually, it's more than one bad call, and it was sort of a series of them. And I'm deeply sympathetic to the complexity of those decisions, but ultimately, the deal is venture capital gives you money, in the hope that management builds a great business. And, yes, in some cases, certainly, they take a board seat, sometimes there's so much money in that they have control, in terms of being able to decide who the leadership of the company is. But, ultimately, the job of the founders or the job of the CEO or of the executive team or whatever you have it, is to go create a good business.
And if they do that, then everybody's aligned and there's now of the bad behavior that we think goes on. And then if there is, usually, it's very rare to have a lot of drama in businesses that are high functioning, right? So if the management team's doing a good job, you don't tend to see a lot of the founder displacement or executives being forced to do bad things. If you think about it, if you were on a board and you really believed that the company's future was at stake if you made the... continued on a course of action that you were taking. And your choice was to force a person who doesn't want to do the thing you think is so foundationally important to do your bidding, or fire them, what would you do?
Corey: It's a terrific question. And I've done a little research, since my tweet. It turns out that, wow, oh, wow, people are talking to me about this and it's not always the hee-hee you're funny feedback that I have grown addicted to on the Twitters. It was critical feedback, not just from you, and it was interesting, because it seems like my feed is pretty evenly divided. I've done some homework since then, and it seems that by all reports that they currently have a 174 employees, which to me is, I guess, it changes my perspective ...
Adam: Pretty big.
Corey: ... on the company.
Yeah, I was thinking this was five or 10 people sitting in a room. Now, that's still over a million dollars raised per employee, and it's also, according to Crunchbase, the arbiter or such things, the first time that they've taken funding-
Adam: That's right.
Corey: ... from an outside source, which the concern I have now is that I... The reason I care about this is not because I enjoy crapping on things for fun.
Adam: No, no it's because you love 1Password.
Corey: I love 1Password.
Adam: 1Password is my most beloved thing.
Corey: Exactly. I take a look at my dock or my menu bar on my Mac, and that is the thing that I am the most accustomed to seeing that automatically, if you'll forgive my term, sparks joy. And if I look at the-
Adam: It's the first thing I install.
Corey: Exactly. It needs to be, and I look at the rest of the dock, and I look for great applications that were developed by software companies that took a lot of VC money, and I don't see them. I see things that started off terrific and beloved, and have turned into something kind of monstrous, Dropbox. Sorry, something caught in my throat there.
Adam: Oh, but come on. On mind, right now, Slack, iTunes. The idea that it was the source of the money is crazy person talk, and if you were the manager of 1Password, you have this great application... The problem with 1Password is my mom doesn't use it. So if you... I bet that business has crazy good unit economics, so for people who don't know what I'm talking about, it's can you produce the goods for less than you sell it? It's the key feature of telling you you're going to have a good business. And so every copy of 1Password they sell, I bet they make a bunch of money on. And the side effect of that is that if they could just get more reach, if more people knew what they should be doing is running 1Password, they don't have to do anything different than what they're doing already. They just need to reach 10 times the audience.
At which point the odds that that audience would love it just as much as we do is very, very high, right? There's no question my mom could use 1Password, she just doesn't even know it exists.
Corey: It sounds like you're not as good of a son as I am, I got my mother on to 1Password a couple of years ago, and suddenly the, I forget my password calls stopped, which was-
Adam: Oh, that's amazing.
Corey: ... amazing. Oh, yeah.
Adam: Yeah, I should have thought it through. Well, now that I'm doing it, I like, "Oh, I'm not a good son." But from a business point of view, the alignment that says what we should do is take $200 million and just drive those unit economics as hard as we can. Just put as many dollars into getting the word out that 1Password exists, that you should have it, that this is what it does for you, this is how you use it, that you can support that massive influx of users. It's not rocket science to tell you that that's what you should do. And the odds that the people who took that money are smart people who do good things, pretty high, because there we are talking about how much we love 1Password.
Corey: And that's part of, I think, the problem, because people have seen this as a small, scrappy, bootstrap company, where I believe in them, I vote with my wallet. A number of people complained heavily, oh, did they complain. When they switched away from their historical model of each version costs money, you buy the software, it's yours. And they switched away from that over to a subscription model. I personally, have no problem with that. I'm a big fan of, I love your service/product, charge me for it, and whatever allows you to build a sustainable, scalable, reasonable business.
And I have no issue whatsoever with them deciding that subscriptions were the way forward. Is it my first choice? Maybe, not, but I don't know what it's like to run a company like that. I can't imagine some of the pressures they must be going through.
And that's kind of the challenge I have, is your narrative, where they take that $200 million and plow it directly into marketing, and that's the last money they'll ever need to raise, until they go public in a few years. With the right emphasis on the correct things, especially, if, according to legend, they were profitable to start with. The-
Adam: Yeah, I mean, you'd have to do it really wrong. With $200 million, at a 150 people, or whatever they are, I don't know their revenue, but let's assume that they're halfway to a 100 million in ARR, and that they're growing, whatever, 20% quarter over quarter, year over year. 20% year over year, right. It's a pretty solid bet that if that's the shape of, or anywhere close to the shape of the curve that with $200 million and an investment in sales and marketing, they're done. They'll be a public company that has great economics and they'll IPO, and their investors are going to be happy at the incredibly safe, relatively safe investment they made.
Corey: Absolutely. The other piece of it though, is I migrated off of LastPass, after some very weird customer service experiences there, and some implied data breach stuff that wasn't taken particularly seriously, over to 1Password. Migrating wasn't the hardest thing in the world. There's a great importer that 1Password spun up. Would spinning it over to something else be possible? Sure. Would it be painful? Definitely, it would kill an afternoon at least. And the question is is what would it take to get me to completely turn my back on 1Password? The only realistic concern that I've had until now, has been a data breach, where if I can't trust my password manager to securely protect the passwords, given that is the single, sole job that I expect them to do for me-
Corey: ... then you're right. I don't see that there's too much of that they can get wrong, as long as they keep the passwords safe. Now, the other side of that though is with enough money, let's say it wasn't 200 million, let's say it was, I don't know, the Vision Fund 2.0, where they need to take, yet, more investors who have bone saws when things go wrong. And at that point they're hurling piles of money into it, let's say it's two billion. At that point you'd almost have... There's no way they're going to spend that on sales and marketing in any responsible way, so you'd look at that and think, "There's got to be something else that they're going for." Is that also a naïve approach?
Adam: I mean, yes and no, right? So look you can take too much money, so in the grand scheme of venture capital and business, you take capital in at a valuation in the hopes that you then exceed that valuations terms and everybody ends up happy, right? That money comes with terms, there's a lot of complexity in those terms, but one good example there is preferences. So the odds that that $200 million came with a 1X preference is pretty high, right?
So what that means is, when they go to sell 1Password or 1Password becomes liquid, so either it goes public or someone buys it, the $200 million that Accel put in, comes out off the top first, and then everybody goes together, as if they were starting from scratch, right? So let's say, they sold it for a billion dollars, or they went public at a billion dollars, so the $200 million comes out first, then the 800 million gets split up according to whatever the shareholding percentages were, right?
So how you get in trouble for taking too much money, is either take too much money at too high a valuation, or take you just a little bit of money at a crazy valuation. It's really the valuation that gets you in trouble, right? So when you take any money and you say that it's worth a billion dollars, you have to live up to those evaluations, right? You have to actually get to a place where what you build is worth more than the money that the valuation bank was investing.
I think that, so in the case where they took in $200 billion, look any company who's taking in billions of dollars in venture capital, the only reasonable way to do that would be at a crazy valuation, right? So if you took $2 billion and you were a 180 people and you had sub a $100 million in revenue, that's a big valuation, right? Even if we assume that you were only expecting like a 2Xor a 3X return, which is likely what someone like Accel is accepting. We tend to talk about venture as a 10X return, but that's when you're doing what I'm doing with the System Initiative, where I don't have a product. I'm empty, and you're just filling me up. You're filling up the tank with money, and then hopefully, I turn it into some real stuff.
But, ultimately, for them if they took a $2 billion influx of cash, the concern would be, it was so much money on so little business evidence, that there's no possible way they could live up to their own obligation. And that sucks too. That situation is also a management problem. So, yes, it's an investor problem, you would love to have investors who just say, "No." And lots of people will say, "No," to those crazy terms. WeWork was a good example. Lots of people said, "No," to WeWork. Lots of people would have said, "No," to 1Password, if 1Password said what they wanted was $2 billion. So that's the trick, is that what kills you isn't that they have $2 billion and now they need to spend it, and therefore they have to do some crazy shenanigans.
Everybody is aligned, investors are aligned, 1Password management are aligned, 1Password's employees are aligned, but what they should do is build a great product that people continue to love, and sell it to more people. It's not that hard. Now, if you set the goal for that alignment in this unrealistically, humongous way, then sure bad things will happen, because you'll likely fail to live up to those obligations. And so as a manager, as a person who takes the investment and decides what to do, you're balancing both kinds... You're balancing the upside with the downside risk. What if I don't make it? So 1Password takes in $200 million, let's assume that they didn't give up control of the company in exchange for the $200 million. So the worst thing that happens to them, if they didn't give up control, and I bet they didn't, means that they have an unhappy investor.
That's pretty much it. If they fail to live up to their obligations, and the business is generating revenue, and it makes more than it spends, it's kind of status quo-y, right? They're very little risk.
Corey: I've frequently said that multi-Cloud is a stupid best practice, and I stand by that. However, if your customers are in multiple Clouds, and you're a platform, you probably want to be where your customers are, unless you enjoy turning down money. An example of that is InfluxData. InfluxData are the manufacturers of InfluxDB, a time series database that you'll use if you need a time series database. Check them out at influxdb.com.
The challenge I see, I think, is that I believe very strongly in what 1Password does, and as their core focus of that single thing that they do, namely keeping my passwords secure, safe, and available for me, but not to others, that’s a terrific business. I don't necessarily see a path to going public. I mean, the blog post that Accel put out announcing this, they mentioned three other companies that are 1Password customers, Slack, PagerDuty, and Dropbox. All three of those have gone public in recent years, and they all are sort of faced with a similar problem, from the outside, which is, okay, you're public, but right now all you do is this one core function. PagerDuty they wake you up in the middle of the night. Slack, it's IRC for work as a service. And Dropbox is one folder on your computer that syncs to all your things.
And the challenge is is all three of them are now self-describing as platform companies, where they're expanding well beyond what they initial niche that they needed to fill. So now we take a look at this and we see that the market for better or worse seems to push these component companies into becoming platform companies. And I guess, I'm concerned ...
Adam: Let's be clear they're all public companies now though, right? So-
Corey: Oh, absolutely.
Adam: And so the market we're talking about isn't venture capital Svengali, do you see what I'm saying?
Adam: You're talking about public market Svengali's. You're talking about everybody else who wants to put money in them is saying, "Where are my growth dollars? Where's the growth honey?" And that's a different question. If the answer is, I'm upset that the market wants growth in public companies? Yes, sure-
Corey: Well, that's the question, is it possible to raise $200 million for a company like 1Password in its current position without the hope and expectation of taking it public?
Adam: Of course not. No, of course, they're going to go public. Of course, they're going to. No, and it would be ludicrous to take it, if that wasn't your plan. So to be clear, the only reason to take that capital is because your intent is for that capital to become liquid on a time horizon that everybody agrees on. If we don't all agree that that's the point, then don't take the money. Talk about bad management insanity. If you take someone's money, that explicitly says, "Hey, I exist in order to become liquid. I exist because I take pension fund dollars from Ford or from Teacher's Unions, and I take some sliver of their pension and I stick it in a high risk asset and venture capital, and then I took some of that money, and I didn't intend to ever return it? That's crazy."
You see what I'm saying? That's nuts.
Corey: Oh, yeah.
Adam: Yes, of course, their intent is to go public, but the idea that a thing that you love, that they people who built 1Password, that they shouldn't go public, that instead they should be like, I don't know, content with their knitting or they should go drive race cars like DHH, because it's more morally pure to build a business that doesn't take dirty, dirty venture capital. Fuck all that. None of that is pure. None of that is. These are just... The people who built that business, and who decided to do that thing, the idea that what they want to do is convert that wealth into liquidity, that is not insane. It's just not.
And the best path for them to turn that into liquidity while remaining the 1Password you know and love, is public market, because the alternative is private markets. And in the private market it means somebody else is going to run that business, right? Somebody else is going to take that thing and they're going to shove in some direction that you wish it didn't go. And maybe it'd be okay if Apple bought them or whatever, but I don't know, Apple's pretty bad at running services, right? So if I had a choice about do I want those people who built this product, who I trust, to continue to have that trust, do I continue to trust them, and do I believe that what they're going to be able to do is go build a public company? Absolutely, I do. Right?
Does that mean I'm going to agree with every product choice they make? No, but PagerDuty is a great example. Do I trust the leadership at PagerDuty, who's the same as the people before they went public, are going to make reasonably good decisions about PagerDuty? I do, right?
Corey: Oh, yeah, they're great people over there.
Adam: They are.
Corey: I agree wholeheartedly, but even now you see that... I love PagerDuty, as a great example here, or what they were, which is the thing that wakes me up when I have a system that wakes me up, and they are spectacular at that. I've given conference talks, where I have their logo on a slide with a speech balloon that says, "Wake up, asshole." Because that is the function that PagerDuty provides, and they have the grace not to sue me to death over that.
Corey: But as now they're talking about, oh, expanding into some of the higher level... They're becoming a platform, to use their terminology. I see it not being great for the core mission of the product as such, and that's sad and I can get over it to some extent. I can grouse about it significantly more with Dropbox, but the concern I have is that if that pattern is true, and it does point to something systemic, with my password manager now needing to grow beyond managing passwords into other things, that's a scary, scary prospect. And maybe I'm just too early to the fear mongering place.
Adam: Look I don't think you're too early to it. I think that in one of these categories we have human beings who in general we trust and like, or at least want to believe that we do. I couldn't name a single person who works at 1Password, but I can name the people who work at PagerDuty. But on the other, we have this big bucket of mushy bankers, right? Who as far as people can tell, have no idea how they work. What we know is that they have a lot of money and they put it in stuff that we think is dumb. And then we hear about the ones that were spectacularly done, WeWork, and we're like, "Man, those guys are jackasses."
And sure, okay, sometimes they're jackasses. Also, the one thing that's always true, in all of the things that mess up in the way that we're talking about, is management made terrible decisions. If PagerDuty becoming a platform company is going to destroy the value of PagerDuty, so that their core business gets eaten away, they're going to get destroyed in public markets. And that will mean that their leadership made terrible decisions. It's not because they were having a board meeting, and the board made them do it. They wouldn't make her do it, they'd fire her. And they'd put somebody in who would do the thing that they believed they needed to do. And that doesn't mean that she's doing it against her will, I don't believe that for a second, because if she was doing it against her will, they'd have fired her already.
Do you see what I'm saying?
Corey: Absolutely. Oh, absolutely.
Adam: There's no fight here like that. And so sometimes I'm sure that happens, but way less often, and so in the chance of 1Password they, so far, have made decisions that make a product that I love. Do I believe that they will continue to make good decisions with the product that I love? All evidence tells me I should believe that, because they've continued to do it over the course of years and years and years, which is why I'm a loyal customer and I love the product. And so the idea that they're choice of capital infusion so that they can get liquidity, is a risk, that's not the risk. The risk is are they going to be jackasses? Which was the same risk you had before they took the money, see what I mean? All it takes is one person deciding that the most important thing for 1Password isn't keeping your password safe, and next thing you know, you're moving off 1Password. Right?
Corey: Oh, yeah. Or they start doing the Google approach of selling customer data, and given that these are passwords, that does raise some eyebrows. I'm kidding, I'm kidding. I have no-
Adam: No, but it's a great example.
Corey: ... imagination that they're going to start doing that.
Adam: But it would be... that would be a terrible business decision, and if they decided to do it, the backlash would be swift and intense, right?
Corey: It absolutely would.
Adam: They'd be real bad.
Corey: The question I have is, and I see-
Adam: And they probably won't do it.
Corey: I do see what you're saying, but isn't there a counterargument, where you take a look at the leadership that you have invested in, that you trust, who are still running the company, until now they really, I guess, from a naïve perspective, were in charge of their own destiny. They could make whatever decisions they thought were best, and they still are in charge of the company, they can still make decisions, but now they have someone who just wrote them a $200 million check tapping their foot and saying, "Well, I have some suggestions." And at some point those suggestions have a very heavy weight, that would almost certainly influence how the management winds up addressing things.
I mean, you took VC money back when you were at Chef. When investors said-
Adam: I've taken a lot.
Corey: ... "We think you should..." Yeah, when people said, when your investors said, "We think you should do X." Whether you did X or didn't do X, you certainly owed them a response including your thoughts on X, I would imagine, no?
Adam: Sure, but let's back up. If Chef... Most businesses aren't like Facebook, or even 1Password, they don't just become awesome and then stay awesome. Do you know what I mean? We draw charts that are like the curve up and to the right. That's not the truth. The truth is it's like a weird stair step, and at every moment it flattens out, and you're like, "Oh, my God, we're all going to die." Right? And depending on how long it stays flatish as opposed to sort of tight and towing to the curve, the more everyone gets nervous, because you don't know what's going on. And you try to fix it, and you're not sure, and you're just throwing stuff at the wall.
This is true of every business. It's not unique to venture capital focused businesses. When the business is great, when the economics are good, when your numbers are good, when everything is up and to the right, no one is standing behind you tapping their foot. The only thing that they do is say, "Really good job. Keep doing that work." That's it. Board meetings are the best, because all that happens is it's great, and they go, "Keep on being great." And you're like, "Sure will." And everything's cool. And if they have suggestions, it's about how you can be cooler, how you can be greater. Not how you can could fix the mess that you're in.
Now, business stops being great, things get weird, you start selling the metadata from the password vaults, which causes everyone to flee the service. Do you see what I'm saying? Bad things happen that change the fundamental shape, absolutely, you investors care about what's going on, right? In those moments they tend to not be... it's not like they're hostile, where they're like, "Oh, we better make you do bad things." Their alignment is the same as yours. What they want is the business to grow and to work, so that it can become liquid, so that they can get their returns that were the reason they were there in the first place. So, yes, there are bad venture capitalists who freak out, who drive all kinds of bad behavior, who do bad things, because they're bad board members, and it's a real pain for the people who have to manage those companies.
In general though, the thing about it is that even a bad board member is a good board member when the business is killing it. Does that make sense?
Corey: It does and-
Adam: There's just... There's no... it's really easy. So 1Password, today they have one board member, they probably have a minority stake in the business, and maybe they have some terms around liquidity. They probably have some terms around a right of first refusal on a transaction or something like that. Other than that, they're going to come to a meeting once a quarter, maybe, and they're going to talk about how the business is doing, and the answer's going to be, "We're killing it." And everybody's going to shake hands, and they're going to go away, and then they're going to have conversations like bankers do about whether now is the time to take it to a public market, yes or no?
And what are those metrics? And how will we do it? And it is not a Svengali product level design conversation, not at all. Not in my experience and not in the experience of the people I know, who've been through it.
Corey: I think that you have an excellent point. I think that the next step on this is likely going to be that we do another podcast recording, whenever they publish their S1. And then we can take a look back and see how things wound up progressing over the intervening time, and how this impacted the trajectory of the company, the numbers they disclosed, the risk factors. And I think that history's going to be the judge here, until then, as much as I hate the term, I'm just being a pundit.
Adam: Yeah, I mean, we all are, right? One last thing before we go that is one of the reasons that I'm so... I feel so strongly about this point is that one of the worst things in Silicon Valley is the degree to which we believe that founders are infallible, or that all the good things that happen in the companies or products you love come from the people who founded those companies. And don't get me wrong, often they do, but-
Corey: I can't imagine every problem I ever had with Chef, when it wouldn't compile, when I had weird issues that I couldn't understand, I assumed they were all your fault, personally.
Adam: I mean, mostly they were, right? But I think the thing about that founder focus and the thing about the reasons... one of the reasons I said that it was a lazy take to blame the venture capitalists is that we let bad founders and bad managers off the hook by saying, "Hey, if they just... those venture capitalists. Some people in some backroom made people do the blah, blahs." And man, it's just not usually the way it went down. And usually, the truth is, that leader was not a very good leader, and they failed to do the things that they needed to do. And it's okay that they failed, that doesn't mean they're bad people, it doesn't mean that they'll fail next time, it doesn't mean they shouldn't have another chance.
All that stuff is real, and also I've seen more entrepreneurs and more great businesses and more great ideas die because they failed to realize that their job was to build a great business. And everyone around them told them that their job was culture, or their job was product, or their job was any number of other things. And what they wind up with is maybe good on those things, but definitely not good businesses. And then once that business has to be... Well, somebody has to deal with the mess. Then we say it's the venture capitalists fault. Then we go, "Oh, man the mess here that that venture money forced them into these bad contortions."
And no way, no way. It as a mess, somebody had to clean up the mess, maybe they did a good job, maybe they did a bad job, but don't make a mistake about who built the mess, right? Don't let the people who built that mess off the hook, that's a mess. And it wasn't because of the money they took that it was a mess. Even if it was, even if the situation is that you took crazy money at a ridiculous valuation that you were never going to be able to reach, you took it, management took it. You negotiate those terms, you negotiate those valuations. You negotiate how much money you take. You negotiate those terms. That's a management choice.
And that, when we say, "Oh, VC ruined it." We take the actual people with actual control, whose decisions decide everyone's fate, and we just let them off the hook. It's insane.
Corey: To be very clear, my, I guess, initial distaste for this wasn't nearly as specific as blaming the VCs, blaming the management, or even blaming people on Twitter, which I know is my preferred direction to take things in, but rather the entire situation is, I guess, disheartening is probably the best frame for it. Because I like them when I thought of them as a small company. I liked them when I didn't really have to think about, will they still be doing the exact same thing in three years?
Because, like it or not, picking a password manager with all the different sites that live in there is a commitment for a period of time. Do you ever notice the number of things you have in your 1Password vault never gets smaller?
Adam: Sure, but I love Heavy Metal. I love Heavy Metal so much, and when you start getting into the specifics sub-genres of Heavy Metal there's always a band where you're like, "Ah man, I loved them when they were cool. I loved that band when they were true cult black metal. Before the keyboard showed up." And I get it that's true, and also it wasn't the record label. You know what I mean? They didn't make them take their guitars and write a pop rock record. They did it.
Yes, there were incentives. Yes, the machine drives them in a direction and you're on the conveyor belts of whatever, but fundamentally, they did it. That was their choice, and in the end with something like 1Password, I look at the people who built a cashflow positive business. They bootstrapped their way to 150 people. I bet they have fabulous unit economics. I bet they're raking in cash money, and in the end do I believe that those people will likely take $200 million and turn that into a public company that they can be proud of? Yeah, yeah, I super do. Because it's really hard to get to a 150 people, even when you have venture capital. It's even harder when you don't, because there's all that cashflow you have to balance. There's just a lot you have to do.
And do I have faith that they're going to figure it out? Absolutely, I do. I also, to your point at the... when we started talking, I have a metaphysical bone to pick in his whole conversation, which like things you never said. Do you know what I mean? It was a tiny tweet that said, "I hope VC doesn't ruin this thing that I love." And I was like, "Come on, VC doesn't ruin it.
Corey: Oh, yeah.
Adam: ... Leaders ruin it."
Corey: I look forward to it. I love the people charging into my mentions to have discussions about this stuff, it's great. I mean, because I'm a man on the internet and people don't normally call me out on things when they read things into what I say. Normally... And that means, of course, our experience on Twitter is radically different from that of most folks. The difference in this case though, is it's nice to have this conversation with someone I know and like. We know each other in real life. It wasn't some rando jumping out of nowhere just to go, "Well, actually." It was, "Oh, well, Adam's usually a very thoughtful, kind person, and I imagine he's being... Now there's something I don't get, let's dig in to it."
Adam: Yeah, but I mean, there are plenty of people... That conversation is spun. There are plenty of people, who I'm pretty sure are really disappointed with my point of view on this thing. I'm having a Twitter conversation before I got on this podcast, where people were like, "Look the venture destroys these companies. It's turns their employees into meat." People have a lot of real feelings about this stuff. And I just... The thing that is most common, it's not universal, but is most common, is that the folks who feel that way, haven't been the people who have to make the decisions about what their business does or doesn't do in order to live and die.
Do you know what I mean? And I remember what it was like before I had had that experience and what I thought it would be like, and what I thought my day to day decision making would be and what I thought it would be like to be in board meeting. Or what I thought it would be like to have investors, and I just was wrong. And most of the time I really do think, in the large, that shape of seeing venture capital as bad and venture investment as bad... I'm not saying it's always good, it's not. And there are situations where people do it badly or they're bad actors, or they take too... You know what I mean?
There's a million ways it can go wrong. And also at its most fundamental it's a pretty, pretty good thing, right? And the number of people whose livelihood exist where, it's one thing to say you'd rather that a company didn't take venture money, but if I'm one of the 150 people at 1Password, if they were getting equity all along, which is unclear that they were, right? But let's assume that they have some now, they have a much better window into being liquid than they had yesterday. Now, maybe that turns out, maybe it doesn't, but yes, it's a lottery ticket, and also, before yesterday they didn't have a lottery ticket.
Do you know what I'm saying?
Corey: I do.
Adam: And I think the... Especially, when you think about it from a perspective of trying to start a business or run a business, it is a fucking miracle that venture capital exists in the way that it does. That you can raise money, and look, some people have an easier time raising money than others, there's a bunch of systemic problems. We don't give nearly enough money to women lead startups or people of color. There's a million problems, but fundamentally the mechanism is that people give you money with no expectation that that money will ever see the light of day again, other than that you try your best to do it. That is magic. Right? That's crazy, but that's precisely what happens.
And so when you're someone like 1Password, I think look it's not the end for 1Password, so they still have to convert into a larger business that can be liquid, and be in a public market, but man, I am thankful that that's a thing they get to do. I'm thankful that that's a thing that the people who built that thing that I love can take, in the hopes that it gets them what it is that they desire. And I don't agree and don't think that the folks who look at that and go, "It's this horrifically corrupting influence that ruined the universe." I don't buy it. Facebook when it was under venture capital control and not Mark Zuckerberg pure control, not that it ever was, but a lot of the things you hate happened when it was in public markets, not private ones. Right?
Corey: Yeah, you're right. I think there is a easy, lazy shortcut to just blaming, "Oh, whatever this market model is is obviously the root of all things that I hate." Because the alternative is blaming people who built something you love for what you perceive to be a poor decision.
Adam: That's right.
Corey: On something else that feels more personal. In this case it's-
Adam: And there's people who like-
Corey: VC is faceless to me.
Adam: Yeah, exactly. And they experience of it is faceless. You've never dealt with venture capital, you haven't sat in a room, you haven't negotiated those things. You haven't lived with ...
Corey: Yeah, it turns out that it's super hard to do a raise when, "So what does your company do?" "Well, we have a cartoon platypus, we fixate over bills-
Adam: We make fun of AWS.
Corey: ... and I shit... Yeah, I shit post on Twitter, what about it?" And suddenly the phone-
Adam: I would argue that it's-
Corey: ... is talking to dead air.
Adam: That's venture capital at work, that you didn't A-raise.
Adam: It's good you didn't raise. That would have been a mistake. That would have been bad management of your business Corey Quinn, and if you had asked me, I'd have told you, "Do not raise money on that. That's a terrible idea."
Adam: But, yeah, I really think that there's a lot more nuance and more, to me, I worry more about founder cults than I worry about venture capital. I know my own mind day in and day out. I know what decisions I have made. I know what my positions have been on all sorts of issues that the world at large doesn't know and never will. And also I know there are a lot of people who put a lot of their life and opinion and caring into me as a human being, sort of. Like the totem version of me. Do you know what I'm saying?
Corey: I do.
Adam: And I'm so appreciative of that, there's a lot of really excellent, lovely, beautiful things that that has brought into my life that I love, and I'm so, so thankful for. And also the totem version of me is not me, and... Does that make sense? It's not the same. The same with you, there's a totem version of Corey that people love, and if you stay that person, then they're happy, and if you ever do anything that doesn't map to their totemic version of Corey, then they're not going to be happy with you. And-
Corey: My personal favorite is when I get accused of being too hard on AWS and of being an AWS shield, in response to the exact same tweet.
Adam: Right, at the same time. Yeah, that's right. And one of the things that I'm most proud of is I think I did a good job and continue to do a good job of building actual real businesses that take in money, revenue and solve problems for customers and makes people happy. I would rather that when people think about what it is that is good about the companies you love or bad about the companies you love, we should be having conversations less about where their money comes from and more about how they're being managed. Because we can actually have a reasonable chance of changing people’s direction, if it makes sense to change. Do you know what I mean?
Because most of the decisions that you make as an executive, are pure judgment calls. They're not... Very rarely, are they decisions where you are the sole person who had the depth of knowledge to make a choice. Instead, it's that nobody around you could make the choice. Do you know what I mean? If nobody else could make that choice, then it winds up in your lap. And so by the time it gets to that place, it's usually because the pros and cons pretty much met out on any given choice, and you have to just make one. And it has to be what you hope is the right decision. And, hopefully, you are a good leader who is willing to reevaluate your position when you get new information.
But maybe not.
Corey: If people want to learn more about what you have to say about this and other topics, where can they find you?
Adam: They should just follow me on Twitter, I suppose. I'm AdamHJK. I also talk a lot about open source and sustainability stuff. I wrote a little, it's not a book, but it's longer than an essay, and you can read that at sfosc.org, sustainable, free, and open source communities.
Corey: Excellent. Thank you so much for taking the time to speak with me in a format that extended beyond 280 characters.
Adam: It's my pleasure. You're a delight.
Corey: I really am, but so are you. Adam Jacob, co-founder of Chef and creator of Chef as well, now the Chief Executive Officer and co-founder of the System Initiative and internet gadfly. I'm Cloud economist Corey Quinn, and this is Screaming in the Cloud.
Announcer: This has been this week's episode of Screaming in the Cloud. You can also find more Corey at screaminginthecloud.com, or wherever fine snark is sold.
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