But like a series A is competitive most of the time when you're investing.
Is that a true statement actually?
Yes, I think so I mean so I came in 2015, about nine years. I think the venture ecosystem has gotten increasingly more competitive. I would say like every single round is probably more competitive. I think if you brought a seed or a late stage investor, they would say that their rounds are also more competitive.
But yeah I think venture itself has evolved a lot At least in the last decade since I’ve been here at Canaan
Well, so I want to ask about the evolution, but even just today do most founders end up taking the highest price term sheet? Yeah.
Yeah. uh, this little controversial, but I think the answer is yes. Um, right?
Like I think of venture as you break it up into like four different pieces of venture it's like seeing picking winning, and then portfolio work and when it comes to the winning piece, I think there are a lot of things that influence that - brand of the venture fund, the partner that is signing up to work and lead and sit on the board of that company, the involvement in that sector, prior work ,the maybe portfolio platform services that those firms provide, but I think those are all inputs, but I think the biggest input is price
I think so. It's like
But I do think when you're in a competitive deal If everyone is around the same price, that's where the other things come into play,
Right. Okay. was going to say, do you have a distinct, Reputation versus I don't know who's menlo ventures or graylock. I don't know who's been around who's on fun 13 Or is it like that you've evolved on some of those other dimensions you've talked about?
Yeah, I think we’re competitive on price
I don't think like that's where we hang our hat. although I think that's what everyone will probably say. But I think, we try to win on those other edges. So like I said, it's like, you want to be in the ballpark with that 80 percent so that you're in the same ballpark as everyone else and then try to win the deal on other factors.
Like I think for Canaan, the thing that makes us unique,
The things that we lean on are one we've been around for a very long time and we've always historically been investing in leading series a companies and then also we're very sector specific and sort of thesis driven so each of the partners at Canaan, we all have different swim lanes and different focus areas.
like I spend a lot of time looking at frontier tech deeper tech areas, AI, edge computing, space investments, The team of partners that focuses on those areas are all very technical and so we all come from that industry in that world in that background
Is that an evolution? Or when you talk about, things have evolved, they’ve gotten more competitive is one way, do you think the swim lanes is one way there’s been an evolution as well?
That's a good question. like we've evolved as a firm in terms of people and just focus areas as well, Like, if I think back when I first started at Canaan, I started as an associate at the firm, like the partnership was very different.
The number of people we had, the GPs that I work with today are all, there are different generations that have cycled through it. And so each of those partners That are leading different areas. Some of them have been here But some of them are net new to the firm and they've created their own sort of swim lane and whatnot So I think the firm has evolved
How do the different generations of venture capital, how do they approach venture capital differently?
So I, I don't know if it's like a generation thing as much as it is a background thing. Cause I, you know, I think about at least the partners that I work with at Canaan and, they each have, Very different backgrounds. Some of them came up, like, from junior VC up to the uh, and just stayed at the firm and grew up in house.
Kind of the path that I'm on. Some of them were Academics got their PhD and then went into venture. Some of them started companies, like took it to an IPO, sold it and then join the firm. And each of those have different ways that they evaluate, look at deals.
And sowe spend a lot of time thinking about like, where's our edge right from like a what's your edge individually? What's your edge as like a sector focus area? And then what's your edge as a firm?
for sure differently. Yeah um, For example, I I grew up at the firm i've been here at canaan for almost You nine years, I think the difference that I have compared to my partners who maybe started a company and then join as partners later on, like the reps that I've seen of just seeing hundreds of companies over the years.
Like that's a, like breadth of deals and like my network associated with that is very different than partners who have different backgrounds and experiences
Yeah, but so what does that mean if you’re evaluating a deal, how are you evaluating it different that someone who grew up on the founder side?
A good example is like if I’m looking at a robotics company or something, I think one of the things that I learned in venture over the years is just pattern matching.
So you've seen hundreds of robotics companies and you've seen sort of the life cycle of some that from 2015 onward. And so where I lean on is just like going back in my brain and thinking about all the different companies I've seen over the years and sort of the arc and the trajectory and what worked and what didn't.
Like that's where I lean on my partners who maybe built a company from day one Or an operator CEO built the business. They might have a much stronger network. For example around their operator network that they can lean on for diligence or to leverage and then also like they pick up on things that I don't like the nuances between founder dynamic.
So the nuances between team building
Right. Makes a lot of sense. It's just so hard. Like every deal has some hair on it.
Sure. I mean, I think that um, like so much adventure is about, especially early stage ventures about.
Like it's just risk. Take, you're taking risk. the capital that you're investing in is like risky capital And I think partnerships are really useful because it allows you to, I think great partnerships, they align on what those risks are, but they weight them differently.
Right. And so there's an alignment on like, okay, we can all agree that. There's like a market risk or there's a regulatory risk or there's a team risk here but the disagreement around the partners, is how do we weight those things?
like oh I think the regulatory thing is like an eight out of ten and I think it's like a four out of ten
I think the best Early stage venture deals are controversial, but they're not controversial in the risk you take. They're controversial in like how you weight those risks.
I wonder if we're saying the same thing, but so, when we talk about it, we say, we should actually get more aligned on how we're seeing the competitive risk. So that we are seeing the same thing, but whether I care about it as much as my partner Gil cares about it.
Like, he might not care, but as long as we've done enough diligence that we know what the competitive risk is.
It's kind of like an AI model
But it's like a neural net, right? It was like, how many layers do you want? Let's structure the model.
And then let's all debate on the weights of that model of how many different parameters do you have? How many different layers? And let's debate on like the weighting of all of those. But like the model itself is set.
Do you have certain ones, where there are certain things that you’ve learned that you really don’t like or are willing to invest in?
Yeah I mean, I think for me, my mental model is - I don't want to take like technology risk, and what I mean by that is, world is I was an engineer before and so when I think about what makes good like series A investment, it's when the technology has matured to the point where it's no longer like an R&D issue or R&D challenge and it's an engineering scaling challenge, and so I don't want to take tech risk, but I’m willing to take all the other risks, like business model risk, go to market risk, I think those things should be undefined when you have net new technology coming in.
So, what does that mean for early stage frontier tech and what you're looking for?
Early stage venture to me is about taking the combination of like technical changes or technology breakthroughs coupled with large macro trends and that intersection of them and trying to match up the tech changes plus the timing of those macro trends. And so I think for us, at least for our frontier tech group at Canaan, we spend a lot of time thinking, okay, do we believe in these technology trends, AI, edge computing, Space and then robotics is another, those are core technology trends. And then do we believe there are industries that are ready for this adoption of technology and so supply chain and logistics or manufacturing and like, what are the tailwinds that we could say are happening today that affect that, that needs robotics or needs AI.
I think when we find the intersection of the two, that's where we get really excited about investing.
Yeah, so tell me like I've been fascinated by the fact that in these supply chain type industries work. They're almost pen and paper companies that want the thing facts and are now interested in AI
Yeah. I mean, I think that there wasn't a existential threat to them historically. And so there was no need for the adoption of technology to be necessary for them, to do their business. But then you look today, like on the supply chain manufacturing side, we think a lot about like consumer behavior has changed.
E-commerce trends have changed the way that we buy stuff. So instead of buying. In bulk, we buy one package off Amazon, then we expect it to come into two days, like that consumer buying behavior has ripple effects down to the entire supply chain. And then you think about like on the manufacturing front, there's a whole bunch of geopolitical challenges going on where everyone wants to bring manufacturing closer to home,
And so all of that comes closer to home, but then no one, we don't have the labor supply to go and support that. And so therefore you need to push automation in manufacturing,
Yeah, exactly.
I mean, as you said, they're expecting their, single item to show up next day. And so a lot of our investments, like, you know, this is the inside part of Canaan, but a lot of our investments when we're doing our investment memos and thesis work and we're going back and forth debating the company, it is that like testing of confluence of technology trends plus macro trends. And do we believe we know what the risks are, regulatory, market risk, and then we debate on the timing of that.
And regulatory, interesting, like, that, that plays in as big for you.
It does in certain instances. So, like for example, we invest in a company called Kepler. It's a space company out in Toronto. building communication satellites. and so they went and acquired a bunch of spectrum in space and then are now using that to go and build out their network. And so regulatory comes up as like a risk item there, for example.
Tell me about space like you are. That's one of your four areas you mentioned.
Yeah, I think space actually kicked off our frontier tech investments At Canaan. So about a decade ago, over a decade ago, we led the series B of skybox, which then got acquired by Google, but that was one of the first like space satellite companies VC backed that got from origin up to exit and then sort of kicked off a lot of what, you now see is like this space 2.0 or space 3. 0,
what is space? 3.0.
Yeah, so our, our thesis on space right now is that, like a lot of the space infrastructure has been built out. So you have SpaceX, you have other launch providers, you have a bunch of satellites and hardware that's up in Leo producing images or sensors, different sensor types. So you have images, you have synthetic aperture radar data, you have weather data, and all of that sort of exists now, like a lot of the last decade of infrastructure of space has been.
How do you get assets up into space and start collecting data? I think the next wave of space to me is like, what do you do with all this data?
So utilities or oil fields that historically had to fly drones or had to get humans to go and do inspection. How do you leverage real time space data to go and it's leveraging all. So you worked at Raytheon number of years ago. How do you see the public sector and the private sector intersecting? What do you think of defense tech?

yeah. That's interesting. So. Like I'm new back to LA or I'm back here in LA. I've been here for about six months, but I did my undergrad here at USC. And then I worked at Raytheon briefly in El Segundo and like defense tech was not a thing back then, like a little over a decade ago. And El Segundo is not like the hotbed of startups that I think it is today.
And so I think what you've seen is this like explosion of interest in. Defense as a category from a technology standpoint, but then also like government as a customer investing and buying startups that are focused on defense tech. And I think that's a really interesting trend. I think that the thing that like, I still want to see play out is.
How good of a customer government ends up being long term and can you continue to build really big companies just focused on selling to government? And we'll company, we'll startups become, the next generation of primes that exist in El Segundo and in that area today, right?
The Raytheons and Northrop's and Boeing's and Lockheed's like, will there be a chance for starters to become that, next generation of primes that sell to government and that government relies on.
So you're saying the question is, are there new primes or is it just everyone subs to those guys?
Yeah, well, the question to me is like, I think that those primes have existed for a very long time and worked closely with the government. securing our national defense, it's like, where do startups play a role in the future? Like, are they additive or are they actually going to grow and supplant and become a prime tomorrow?
I think that's the question that I think through.
I think said that you aren't right now really focused on trying to find the next Raytheon, the next prime
Oh yeah, this is what we talked about
We did talk about it a little bit
Well, so where I see with a lot of these defense tech companies is, I think the challenge with becoming a prime in the longterm is that they're all platform approaches.
You look at Raytheon, you look at Boeing, Northrop, they all have multiple different product lines and they have multiple different divisions that focus on different things. And that is the opposite of what you would tell a startup to do. You would tell a startup, like focus on one thing, right. And then just become really good at that.
And so I think for me, the question is how does a company in defense tech go from sole focused on one, and the other thing is like selling it to government. Right. It is a challenge in itself, like the, not only the sales side, but just navigating it. And it's become easier with things like DIU who are coming in and helping, and In Q Tel, they do a bunch of good work both investing and then working with portfolio companies.
But the question to me is how do you go from, you know, a single product SKU selling to government to becoming a platform that the government can then rely on you as a prime and I think that's the bet that we're seeing with a lot of these defense tech startups.
So tell me more about like how a deal gets done. You told me a little bit which was awesome that you make people duke it out.
Oh yeah. So, I think partnerships are, great if you figure out how to use them effectively.
And I think one of the cool things about Canaan is that it's so diverse and broad. We have people that focus on life sciences and healthcare. We have people that focus on consumer investments and then, you know, I'll bring in a space deal. But at the same time, I think figuring out how to leverage the partnership most effectively is also a challenge in itself.
And so, like, we'll bring a company, we'll have them come and present at a partner meeting, and then at the end we'll do a voting of one through four.
One, I don't like the deal, I would veto it if I could. Four, I love the deal, I would invest my own money if I could. And then two and three, somewhere in between. And then, we show that the results on a screen for everyone to see publicly with their name behind it. And then we sort it by one, two, three, four, and then we have the ones in the fours debate because those are the people with the strongest opinions.
And then we go in reverse seniority. So we have the most junior folks debate first, and then it moves up. I think the things that it helps to remove is one It helps to remove that like that loudest person in the room as opposed to the most well-informed person in the room and then to by having the most junior people speak and then going to the most senior It removes that like, if the most senior, tenured GP like pounded the table for something, no one else sort of wants to speak up because they're worried about disagreeing with that person,
And what is that dynamic like? Is it pretty clear who's the most senior or going to be the loudest in the room?
The dynamic at Canaan it's, it's actually a pretty I think Canaan is unique. It's, they've done a really good job of keeping a very flat organization, even at the top. And so, all of the GPs, equal GPs, they're all, focused on very different areas.
Yeah. You've clearly had to have made some structure that makes the generational transition work.
I think it's super fascinating. Because I think there's trade offs no matter what I think Canaan's done a really good job of generational transition over the years, like the firm's around for 37 years now. None of the original partners are at the firm and they've sort of passed on the reins to different generations. And we're, continuing to go through that over the years. And I think it only works if you have a fairly flat organization that's built on meritocracy where the best performers get rewarded and it's not necessarily based on tenure.
And so Canaan does a good job. I think the partnership does a good job of trying to manage and navigate through that, because I think, I hink venture is one of those. It's like a, team sport masquerading as individual sports sometimes, right? It's like the best analogy I have for people. It's being on a track team or a swim team. It's like, you're each doing your individual sport, but then the sum of your collective places or times or whatever is the aggregate score of the
Oh, I really liked that. And we talked some about how people run their races differently. But have you seen that evolve as like sourcing gets more competitive or as the generational change has happened?
I think the best investors that I know, they have this blend of like knowing what their edge is, but then being open to feedback on how to change it because they know that the industry evolves over time.
And so the ones that I, like the partners that I work with and the ones that have been in the game for a while, they stay relevant by like knowing what they're good at, but knowing what they don't know too, and then knowing how to add that into their repertoire.
I think what's really interesting about the sourcing aspect is when I first started in venture as like a young associate without a network, Like a lot of it was outbound just trying to build my network with the goal of like, , like, I look at my partners and I see the deal flow that comes inbound and I see the network they've built in that flywheel and it's like, man, I really want that.
And then as you progress in the industry and you build up that network, like I look at some of our, more junior folks and I'm like, they're sourcing machines and like they, aren't. I want to say bogged down by the network, but they're like they see things from fresh eyes
What have you seen work really well for like an associate who isn't, hasn't been, doesn't have the reputation of doing it for 20 years or whatever. Do you think people, I mean, I think associates share deals with other associates. Do you think they get in with certain companies like a SpaceX that's spitting off entrepreneurs?
I think that what entrepreneurs are looking for, and maybe you should debate this with me if you think differently, but I, I think like how you win a deal or how you get introduced to a deal or network and build that network, oftentimes it's just like the time that you spend in that domain and in that expertise.
And like for a founder, for example, when I became a partner at Canaan and I do my first few deals and, and, and, and, and, and, you’re going up and trying to win deals against much more experienced GPs. Like the pitch was simple. It's like, I have so much more time to spend with you, right?
I will sit down and like take every single call and like, we can do a ad hoc board meeting whenever, because like, I have that time to invest and to spend with you. I don't have a bunch of other priorities. I don't have legacy boards that I have to go and work with. Like I'm all in with this.
It's like I think founders are amazing people they spend so much time dedicated they spend 25 hours of the day focused on their business like sometimes they need a sounding board or sometimes they just need someone to talk to and someone to bounce ideas off of and like if you no matter what level you are I think if you can be that person and you can be thoughtful and sit in the room and like understand their business and think through it with them like that to me is super valuable
So, your job is not going anywhere, but if it went away tomorrow and you had to start your own firm, would it then, would everyone be extremely sector or, you know, sort of, have very defined swim lanes?
I think the net result is yes, everyone would have their own swim lane, their own focus areas, but I think the broader, like the first level of it is, everyone has their figures out what their own edge is and like why would you win a deal? Or why would this founder or CEO pick you in a competitive pool of investors where they could choose from anyone?
I think sector and swim lane is like a great way to do that.
Like, we started to talk a little bit about, reserves. Like, how would you think about building your own fund?
I think that venture has changed a lot in the last decade. I think like the amount of capital that's gone into this industry, at least even in my time here, has at, I think I was looking at stats, like us venture market was like 60 billion, I think in like 2015, like the peak a couple of years ago, it was like almost 200 billion, for sure.
So I think that reserve strategy is a really important one. Reserves make up around half of a fund, probably for an early stage fund. And like, that's a massive difference in figuring out how to deploy that capital into your companies effectively, like that can have a really big impact on the return profile. But at the same time, it's really hard to deploy reserves into the companies that you would want to in the portfolio because there's. A mismatch of incentives, right? Like the, best companies are the ones that are the, they're the hardest to continue to put money into because it's competitive deals and pro rata your pro rata, even though you have, you might have rights, sort of might get squeezed, right?
And then the ones that aren't performing as well, they're the ones that take a time and potentially want added capital to turn over another card.
I think it's really hard because once you're investing in a company, you have your own biases that you carry with it.
Like nobody wants to call their baby ugly. Right. And so have this bias that just with a little bit more capital, maybe they'll do great. Yeah, I don't know I, the think there's so many factors, like strategy is one of the hardest things in my mind to figure out because there's a lot of inherent biases
There's the timing of it too. And so when do portfolio companies raise and trying to manage the cash flows of the fund and then there's also the reputation dynamic too. Right? Like you as a lead investor carry a lot of weight with your future fall on investment dollars too.
And, you know, it's a painful process to go through all of your portfolio companies and talk about all of them one by one, but, I argue that it's, if it's half of your capital in the fund or almost half of your capital, think about how much time you spend focused on a new investment.
Like there should be at least that much time, if not more spent on the follow on investments, because those follow on’s go in. Likely at higher prices, right? So smaller multiples on return. And so each incremental dollar has to really be scrutinized. Um, And so it's things like that, that I think can really move the needle on firms and on funds
It's a great point.
Do you guys do like a reserves, like quarterly meeting where you readjust everyone's reserves?
A few decades have hundreds of portfolio companies that have gone through our cycle and so a few years ago we looked back at all of our investments and based on the entry point based on the dollars we invest in our ownership. We can set an initial pass on what the reserve amount should be and then from there sort of modify up and down
What's your target ownership when you guys invest?
So for lead investments traditional, like lead a series, they are target ownership is to get close to 20%.
Yeah, because I actually don't always know like what I should model for dilution. So if you're trying to get close to 20, is the entrepreneur taking 25 percent dilution.
I think it varies a little bit. I mean, I think the typical framework I have in my head is, early-stage rounds, seed, series A round series B your total dilution of the round is anywhere between 15 to 25 percent somewhere in that range lead investor takes 80 percent of that and then as you get later
Like it goes down to 10 percent and down that it's less I think at later stages we think about it less about ownership at that point. It's more about dollars that we invest in how we think about the multiple that we get on those dollars
Yep, makes sense. Oh, yeah, I have to just get you a couple of your basics though. You grew up in Hawaii and were raised in Hawaii. But then came to LA for USC
So I went to USC for undergrad, studied Electro engineering there,
And I got this from the internet. You were an NCAA water polo champion while there.
So, yeah, I was on the team at USC back in 2009. We won NCAAs. We had a really good run when I was there. I was just a part of the ride. It was great.
Still that's amazing
It was awesome. Awesome experience.
Bery few people can say that
How do your friends describe you, Rayfe?
I think they would describe me as curious, driven or stubborn
And then yeah, I think my wife would definitely describe me as stubborn
well, I'm thrilled you're in L. A. And really enjoyed hearing your perspective on Venture Capital and learning more about you and Canaan.
Thank you