Why VCs Should Be Pirates | Arian Ghashghai, Founding Partner, Earthling VC

The promise of venture capital in theory is supposed to be that, hey, we're going to back some pirates that are doing weird stuff that could work at some point, right? And if this works, it becomes huge.

Hello everyone. Welcome back to the Data Minute podcast. I'm your host, Peter Walker, here at Carta. Today, I was speaking with Arian Ghashghai, the founding partner of Earthling VC. Earthling is a little bit of a different firm. They're not investing into those core SaaS platforms that you're all familiar with. They invest into weird stuff, robotic oyster farms, ocean exploration, deep tech in all its various forms, with this particular focus on virtual reality. And I really loved Arian's approach to investing into things where you don't have as much information. These companies are not making revenue for many years. You've gotta bet on outlier traits and founders in particular. When we moved from Earthling's core thesis into a broader conversation about venture capital, I thought Arian's perspective on why the current moment in venture feels more like short-term trading than actual long-term value creation was really, really insightful. We talked about what might be wrong with venture and why firms like Earthling are doing what they can to make it right. Let's jump into the conversation. All right. Arian, appreciate you jumping on this Zoom with me. Really great to chat. We've been sort of mutuals on X for a while now, but we've never gotten to meet in person, so this is fun.

Very, very fun. And yeah, I was very excited obviously when you pinged, so like, I've been looking forward to this, so should be fun.

Absolutely. Well, the reason that I was excited to talk to you is because I think Earthling as a fund encapsulates a lot of the stuff that I am most excited about within VC today, because there's a lot of, I don't know what the right word is. There's a lot of uneasiness or kind of almost like quasi-depression occasionally when it comes to venture. And I think that you're doing something really interesting. So I maybe

appreciate that first off the bat.

Absolutely, man. Maybe you can start with just like giving audience a little intro to Earthling in general.

Yeah, so the Earthling Fund 1, so we're the first fund now then deploying out of So the kind of evergreen thesis that I used to pitch this fund when I was still raising for it was predominantly investing in new computing surfaces and mediums very early. And so typically aspiring pre-seed, like valuation streak, all of that. I would say that the way now that, as you sort of also watch your own investing and you kind of always constantly think about how you sell that to people, I've sort of just defaulted to say now I just invest in like weird stuff early and there's kind of a lot of free reins on that. But kind of tied to my background personally also, like kind of my field of expertise is in robotics, AI, VR in particular, like those things. So a lot of the investments tend to be very kind of geared towards that. But I dabble in weird things that derive from that. So it's just like weird deep tech stuff early perhaps. This is always the way I frame it nowadays.

Is, did you get a lot of better response from when you shifted to, I invest in weird stuff early?

I never pitched this. This is actually something that I've only started to use more recently when I actually try to explain to founders what I do or try to communicate through X-led what I'm doing. Um, I never used that pitch actually when talking to LPs. I think now I'm experimenting with it because there are so many new LPs now. I'm obviously actively raising. So I kind of see that as an opportunity to just like test stuff. For sure. And so I'm kind of testing that right now, but no, I didn't actually use that in an active fundraising scenario. So TBD, I'll let you know how that sort of evolves and ends up working out. But

who are the LPs that backed Earthling mostly? I'd imagine high net worths, maybe a public office or 2, those kinds of folks?

Yeah, so actually, so the fund of $5 million, $2 million of that is actually from a fund of funds called AllocatorOne. Great. Who is growing in stature for sure. I think I'm getting like more and more emails all the time from GPs asking about them. I think they do a great job. I mean, so I'll kind of use the like, this opportunity to plug them a little bit also because they're, you know, they're like kind of a newer LP, but they're really great. I mean, they've been great to work with. So, so I'm kind of my anchor quote unquote is them. And then the rest of it is really, yeah, high net worths and kind of smaller single family offices. And like, I would say a non-negligible portion of that kind of high net worth bucket is actually GPs. So like, you know, kind of bigger GPs or other funds. Yep. You know, at the— we have like, I have like a few of the Andreessen NGPs and stuff like that that are LPs. But other than that, very random, but I would in those 2 buckets. So it's like allocator one even is the, is the, is the actually the only fund of funds, right? So it's, They're kind of the exception.

Well, it, um, I mean, I ask about the LP base because I think there's two, as I mentioned, there's like two parts of Earthling that were fascinating to me. The first is I feel like the sectors you invest in driven clearly by the experience that you've had before becoming an entrepreneur, clearly, but also like a bit of where the world is going. I think you were right on the trend of These software categories are becoming decomposable really quickly. They're so crowded and maybe the best place to spend early venture dollars is in weirder stuff.

Yeah.

When you pitch that to LPs, what is their first response?

Yeah, it's a great question. I mean, I would say as a whole, there was a lot of LP objection to what I'm doing, I think on multiple layers, which I think are 2 of the things that you hit on. One, which is just thematically and like thesis-wise and like obviously the other thing is portfolio construction, which I'm sure we'll get into. But sort of to keep it on the thematic, so I think I went through like 55 versions literally of the pitch deck and subsequently like the actual pitch story. And so one of the things that happened to me a lot was, you know, one of the things that I very like unabashedly invest in is VR. And that's a very unpopular take, I would say, in venture right now.

It's a toxic word in venture.

But I love it. I mean, I genuinely think that like, you know, as much I like to invest on the fringe. I think that's one of the things that, um, I may be like one of 3 people on the venture side that like understands the actual dynamics of, of VR. And I think what can be done there. And I think like this fund is particularly set up to capitalize on that. So I love it. Right. So, so that I'm mentioning that because VR was always kind of in the pitch somewhere. Right. It was like part of, because for a long time, I actually had a very, like, I think. You know, people have picked up on it now, particularly over the last year, about how we're going to this kind of like, I mean, people call it embodied AI now. And there are all these kinds of words people are coming up with to basically describe this idea that like, that the software that we've now built is too powerful for the computers that we have. It's like, what about, right? And so we need these new computing surfaces, right? And so that was kind of like the origin of like, why do this fund now was because, hey, this is actually what I'm good at, right? And so now it seems the time to do this. So it was probably like a year and a half early to that. But so part of that always involved talking about, to some extent, about VR. And I am telling you that that was a very divisive thing where either people were like, I love it, great, like amazing, like I'm interested in VR and on that basis alone, I'll give you money. Other people were like, we don't even care about the rest of it. The fact that your deck says VR, no.

They literally said a Control+F VR and they're like, please, Not to us again.

And they're like, we just don't think that like, you know, you can build a whole fund around VR. I'm like, I'm not putting the entire fund in VR. Like, I don't know why like people think this, but it's like, it became very reductive, right? And actually in both ways, like in a positive way or like in a negative way. Fortunately, I think I got a bit lucky with that actually also in hindsight, because I think like one of the advantages that I have is, you know, like I have LPs, like some of my bigger LPs actually just described me as this kind of like wonky guy with a pirate ship. That just like does weird stuff in venture.

Yep.

And I think that was derivative of the fact like, who'd be crazy enough to invest in VR now? So like, clearly this guy is like, he just kind of like, you know, again, he's just sitting on his own pirate ship doing whatever. And that's why we're giving him money. I feel like I kind of have the creative license to virtually do whatever I want all the time. Thematically, because, you know, first I think I'm very transparent about why I do things anyway. I think that's part of my process, like in terms of how I communicate with LPs, but also like, They kind of signed up for that and like giving me money in the first place.

What do you mean? How would you say that you're more transparent than most GPs? Or maybe it's not even a comparison, but

I think so. I don't, I don't know. I mean, I've seen a number of like LP updates that other GPs set up. So I have like some frame of reference, but it's small. But I think like what I've had a lot of GPs actually, not GPs, sorry, LPs double down there on their investments because they literally cited that like, we just love the rigor and transparency of your, of your LP updates. And so basically like, you know, effectively tacitly communicating that they feel comfortable with the level of transparency that I provide, that they're happy to give me more money, basically, right? And so I can't really compare, but the only thing that I really try to do is like, I always take it from the perspective of I gave somebody money and they're doing stuff. I would love to understand just like what the reasoning is for doing things.

100%.

Particularly like if they make an investment and it like, it feels I wouldn't say off thesis per se, but it's like, it's odd. Like, okay, how did you end up there? Right. And like walking people through the logic about like why we're doing certain things and stuff.

But if you make odd your entire thesis, then it's great. You built the whole plane out of these kinds of weird bits and pieces.

But so like a lot of the investments I do, right, are like largely derivative. Right. So, and that's why I'm always, that's why I've come to this kind of almost more nebulous, like doing weird stuff early thing, because part of like, rather than like something more that's Yeah, I would say more hard to find is because one thing I've noticed through deploying is that like, okay, I invest in something that's like kind of thematically quote unquote in thesis, not to say in stuff, but like thematically in thesis. And then, you know, you maybe do one or two deals and they do new weird stuff. Right. And like, cause that's kind of what you've invested in, like people that are just doing kind of out there things.

Yeah.

And you're like, oh, I learned about, um, a new market or a new business model. or something, right? And I'll give you an example. I'll give you 2 different, actually 2 examples to sort of illustrate this point. So I invested in, uh, I talk about this company on Twitter a lot, right? Because I love them. But, um, I invested in this company that's basically building like robotic oyster farms.

Right.

And, um, so basically they're like, you know, they're literally building farms with just with a bunch of robots, right? And so the whole premise is that they can like scale this and they could be like the biggest oyster farm in America or like dirty shellfish farm. So that I thought was like super cool. It's a robotics thing, right? I invest in robotics. This is a robotics company. It's an interesting, weird thing. Perfect, right? Let's do it. Founder was great. Loved all of it. So what I started kind of digging into through that was like the ocean, right? I've never invested in a company or robotics company that's doing things in the ocean.

Right.

And I just sat there and I was like, wait a minute. Like, you know, the ocean is 70% of the Earth's surface, like largely undiscovered. We can't really do anything there. It's a perfect problem actually for something like robots, right? Because as humans, we're very limited in terms of what we can do in the ocean. Maybe we should invest in oceans, right? So like, I have made a subsequent investment there yet, but I wrote like my LPs a note, I think 2 quarters ago that like, that's going to be an active interest area because we just think it's a really cool robotics thing, right? Like the sort of going to ocean. That's like kind of one thematic example. Another example would be like, You know, I invested in a company that was, they were actually in the last Speedrun batch. They're called Agent Astra. So I was one of the earlier investors, like way before Speedrun. And when I invested, this guy was basically just building software that like automates all this paperwork through like logistics providers and stuff. And to be honest with you, I didn't even get it. I was like not even that interested in what he was doing. I gave him money because I thought the founder was awesome, right? So I wasn't like, back off some people and like, he seems to know what he's doing. He's executing really, really well. Like, I'll just get it behind a guy like this. And so he pivoted into this thing where he like is, you know, he's basically doing rollups now. And I know rollups are also very divisive, right? But I got very convinced about the business model. And so that sort of put me down this path of like, wait a minute, like all these new technologies I feel like actually enable new business models. And I actually have this kind of like working thesis now. That the way that the SaaS business model became very attached to like internet companies, right? And that was like kind of like a very simultaneous phenomenon where, you know, you had internet software companies prop up and that really brought like the relevance of the SaaS business model, right? And those were kind of paired at the hip that it's entirely possible that in this like new paradigm, right? There's a, there's a different business model that becomes attached to that. Um, cause I'm already seeing that guy do it. And then I saw a couple of other companies do it. that I'm invested in. So I was like, we're explicitly interested in new business models or like, you know, these kinds of sectors that we're investing in that are pursuing a completely new business model, new way of making money. And so, yeah, that's again, also like derivative stuff that I've done, right? You know, where I'm like, I could not have planned for that a year ago. It's just something that you kind of observe from watching the market. And so, which sort of like underscores this point of You know, I think when you're investing really early into like, you know, I'd call it, want to call it deep tech or whatever, like frontier tech, whatever you want to call it, it's almost like impossible to like predict things into some sort of medium term, right? Like, you know, I think your job is to be largely like nimble in terms of like what is happening and how can I constantly be on the fringe? Because what was maybe fringe 2 years ago is not the fringe today.

What do your LPs say when you bring them something like I found a robotics company that's dealing with oysters, and therefore I'm going to follow this thread towards other ocean investments. Is there a portion of the LPs who go, wait, this guy's never even thought about oceans before? Like, why is he doing that?

No, not at all. Actually, the only— I can tell you the only thing I've ever gotten an angry LP reply from, from saying was not even like at the specific decision that I made, but in the last LP update I sent out, I actually made a note about how I'm concerned about the fact that the Chinese appear to be very ahead in robotics to the US. Um, and that's the reality we need to confront. And we're not really, I think, helping ourselves with a lot of the, the actual venture activity that we're, that's going into that space right now in the United States.

Yep.

And I had an LP not be particularly happy about that framing. That was the only thing that, and again, I largely put that down to, um, I think that's a whole like different can of worms, right? I think that's not necessarily related to me personally, but, you know, but I've never had anybody complain actually, like ever. Like, and again, that's what I like about, I think I got a bit lucky. Like I think the pain I took for making my fund harder to raise actually gives me more freedom now to kind of do what I want. Yeah. Because I could have easily made decisions, I think, when I was raising the fund where I could have like, you know, double or tripled my AUM for this fund easily. They're just not decisions that I thought would be smart, like the best to make money or like for me to actually do this job well. Right. And so that's a trade-off that I took. I actually really feel like now in hindsight, like that, that was, I feel very vindicated by doing that.

Do you think you could deploy 3, 4, 5 times as much money in the right ways or is it more freedom to make your own decisions?

Yeah, I think like, I mean, I think the strategy that I invest on, I mean, it's, it's, it's, I always call it like the Boost VC model, right. To some extent. And, you know, I mean, I guess for those that might be watching unfamiliar, I mean, you know, going in very early, pretty large check, uh, you know, very, very diversified. Yep. Uh, I think, I think the actual model of how I'm investing could easily scale. I think in some ways my life would be a bit easier if I was like a $25 million fund. I mean, I would do the exact same thing, but larger check sizes really.

Just own, just have more ownership upfront.

Yeah, exactly. And honestly, I mean, there are deals that I've done where I'm sure like I could have probably gotten a slightly better cap, you know, we could have more leverage with the amount of capital I'm putting in and stuff. And So that wouldn't be the issue. Like if you gave me $25 million now, I know exactly what to do with it. The, what I more mean is that I would, you know, the way I would have pitched that fund would have been more boxed in and making kind of portfolio decisions or pitching portfolio decisions that I actually don't agree with. And so I'd probably be in a position where I could not actually deploy the way I want to deploy it.

Right.

I think the best example of that is the portfolio construction itself.

Right.

I'm pretty sure if I had pitched, we're gonna be a concentrated, high ownership, like low bet fund, like I'm gonna invest into 20 companies that precede and buy 5% ownership with some reserve model and sell myself off as being like the best picker ever in some vertical, I'm sure I could have raised a lot more money. But I, you know, as, as, as, as you know, one of the things we bond over obviously is that like, that is absolutely not going to make any money, you know, across— or let's put it this way, the probability that that becomes very small.

You can hear the one or two funds that are like, no, no, no, we can make money that way.

Yeah. But if we're sticking to the numbers here, like that's a very low probabilistic way to make money and I just wouldn't want to do it. Right. You know? And so, Like, I just don't think that's the right way to invest. Like, I don't think I'd be, be, be, I wouldn't be genuine to the LPs that, that, that I'm obviously pitching to, they're invested in my fund. So why do that? Right. You know, like I don't, I don't, I don't get it. I mean, I have my own theories as to how that, how a lot of GPs can devolve into that kind of thinking, but I haven't gotten that cynical yet. Let's put it that way.

Well, don't lose the optimism. Don't lose the— and I, we don't need any more cynics, but it does bring up a big question that I wanted to get into with you, which was the portfolio construction itself. 2 questions on it. One, did you spend most of your time with LPs getting them bought into your idea of the kinds of companies you invest in or the way you'd run the fund? Like, we'll start there. Which one of those 2 questions was the more— was the bigger sticking point?

That's actually a really interesting question because one of the things that I actually find very funny Is that all the LPs that I have are the ones that took my, like the least amount of my time. Even AllocatorOne, the one that I mentioned, like I think I spoke to them for about 45 minutes before they said they're into like their vesting, right? They're investing $2 million. So we talked to them for 45 minutes, that's it. So they're very high level. And so I think like honestly, in my opinion, it was the LPs that I saw come in, it was very analogous to like what us as VCs do at Pre-Seed and in terms of like how we're underwriting founders. Yeah. Where they're like, I've largely found 2 parameters to be true. And I, and this is actually advice that I got incidentally from Adam Draper of all people, who I think is quietly one of the wisest people in this entire industry. But, you know, he told me, he was like, listen, like your job as a GP is to find LPs where 2 parameters are true. One, they've decided that they're, they want to invest in venture. And I think this is actually important because I know a lot of particularly first-time GPs that think that they're going to meet with some rich person and they're going to convince them to give them money for their venture capital fund, even though they have no explicit venture strategy. And really, you're never going to convince them of doing that.

I think it's, to double down on that point for a second, I think it's one of the biggest ways that you can waste time as a GP is trying to convince someone about the asset class in general. What would you want to say? It's, I mean, I guess in some ways it's necessary in that someone should be trying to convince, you know, net new LPs to visit, to come into venture land. But if you're a GP, I think it can be just a huge sinkhole of time.

It absolutely is. If like, I know a lot of first-time, you know, like I think all of us when we start fundraising for the first time, obviously we're a bit naive in nature, right? I mean, that's just, you know, you're a bit naive until you sort of like figure out the game, right? And I think, I think all, I'm sure every GP you talk to would probably say about a lot of mistakes they made raising the first fund, right? But so that's the one point. The second point is, you know, they've already also made the decision that they want to like allocate to your kind of area or sector, right? Or like generally what you're doing, like they already bought into the idea of what you're doing. And so your entire goal as a GP is to just find those people, convince them that you're the right person to do it. Yeah. And like, so basically like you are the person to solve their already predefined allocation problem. And so this is largely how I've, like, if I look back at it, it like, there are exceptions, right? Of course there's some LPs that I have, they're like, they're just really into VR. Right? And they just want to be in a VR fund or something. But I would say the majority of the money that I have is really like, they've already kind of had in their head that like the kind of fund that I'm offering is the kind of thing that they would invest in.

Yeah.

So I think most of the call and the diligence was really just me personally.

Yeah.

And I really did not spend that much time actually diving very deep into a lot of things because a lot of it's actually very straightforward, right? It's, what I'm investing in is fairly clear. The how we're going to invest is fairly clear. And like most, again, most LPs already have their own idea whether they like that or not. like portfolio construction, right? And so I felt, I feel like most of it was really more about me and maybe like my understanding and like my, you know, just like generally like picking my brain, but I think it's largely more diligencing me. More so than anything else like that, that is the way it felt, I would say. So yeah, I don't know. It's, it's, it's, it's, it was, there were all these processes that were surprisingly lean. It's incidentally the ones that got very nitpicky and stuff. Like those were the ones that usually always ended up being a waste of time. Yeah. And that never actually ended up running

Yeah. It happens, you know.

It's the same in venture side, by the way. I feel like the, you know, the VCs that you have that are very quick to be like, to commit and be high conviction and go on stuff, they're largely like, they're pretty fast and undiligencing people.

Yeah.

Yeah.

Yeah.

Um, they're not, they're not, they're not going super deep on, you know, whatever, like try to decompose this technical argument or that kind of thing. Right. You know, that's pretty—

I think it's, I think it's a, like a good meta point where it's your, The time that it takes to convince someone all the way down the stack about the asset class, about your strategy, about your specific allocations, about blah, blah, blah. If there isn't a part of that that becomes streamlined and quick buy-in, then it almost never works out.

It never works. And like, I mean, it's interesting how it works. I mean, so like when allocator 1, like my anchor committed, you know, the GP there actually told me why they're doing it. He actually on the call told me like, we're going to do it and this is why we're doing it. Yeah. You know, one of the reasons he literally cited this just to sort of like really illustrate that point. He was like, hey, like, I think your thesis makes sense. I think you're talking about some things that I've never— I've listened to 600 pitches this year. You're the only person I've ever heard talk about this, which is interesting. And I actually mentioned what that point is, but not to sort of go on a tangent, but— And listen, like me, as I've invested a lot of funds, like individually as an LP, And all the ones that made me money are the ones that were like yours in terms of like, they were like pretty small, early, diversified. And we don't have a fund like that in our like fund of funds portfolio yet. And so I think it basically just makes sense to have one of those. So like, we're going to do your fund. Right. And, you know, and so, but that was exactly that. Well, like clearly that GP had already thought of like, I'm interested in something kind of like weirdly deep tech. And I'm looking for something that is fairly diversified and early. Yep. And great. Like I happened to just, I guess, hit their bar in terms of what they're looking for, where they felt comfortable. They're like, yep, this guy solves that problem. Right. I didn't convince them about any of that stuff.

Right. No, they had a mental model of the world and you fit into the slot. Exactly.

And so of course the funny part with that is, is though I actually like to always mention the portfolio construction example to that because, you know, as we all know as a whole, you know, diversified portfolios in particular are not very popular with like fund of funds, a lot of the kind of like more institutional LPs and stuff for a lot of reasons. But they actually, it actually, that actually played into my hands because it's, I guess, discouraged so many GPs from building funds like that, that like occasionally when you meet the right LP that does that, yeah, right. Sorry. That does that actually, you're not competing against a lot of people, right? Because everybody's been discouraged from doing this kind of this kind of like diversified portfolio thing. So I thought that was funny, obviously, that like, you know, actually it was something that had been a downside for most of my fundraise ended up being like a, you know, ended up scoring me my anchor basically. Right. So,

so when, when people, when, you know, you and I and Dan Gray, our friend, friend on X and occasionally in real life, we have been, I would say on the side, on one side, generally speaking, I'm a little bit more of a, less of a participant, more of an interested observer on these venture debates. About portfolio construction, et cetera. I wanted to run through a couple of the objections that you probably heard a ton and just see how you reason through them. So the first one on the big portfolio side, the number one object— well, there are 2 main objections, but the first one that you probably get is how can you support that many companies, right?

Yep.

It's just you there. What, you're going to be on your phone all day, every day supporting 50, 60 founders? Like, that's improbable. So what's your Pushback on that?

I say a couple of things. I mean, I said, listen, like up to that point, I think I'd angel invested in about 30 or 40 companies, I think in a like 2, 3 year span or so, I think closer to 3 years. And I was like, it's never been an issue for me. I was literally doing this next to my day job, right? Like, and it was largely manageable. I think that's the one thing. I think the second thing, so just truly from like my own lived experience, I think the more kind of qualitative A pushback I always gave to that is that now I would actually add more. So I'll do the ones I actually said and then the ones that I would actually say if I was engaged with this question again today.

Yeah.

So the first pushback was that, listen, the best founders that I've ever invested in like really didn't need my help at all. And the best, honestly, like the best founders, like the highest performing founders that I had took very, very little of my time. I mean, of course they have occasional asks, right? But they're, they're not time stuck, they'd be like, oh, we're going to raise a seed round. Can you introduce us to investors? It takes about 5 minutes of my time, right? To do, right? It's not a big deal. And it's usually the ones that are struggling that take a lot of my time. And also founders are individual, right? I have certain, I have some founders that I'm just more friendly with, with others and not in a bad way, but like, you know, people, innovative founders.

People are people.

Yeah. And, you know, ultimately, yes, I do deal with a lot of my founders, but it doesn't feel like work. But ultimately that's to say that if I'm bogged down in a lot of portfolio supports, you would probably be pretty certain that my portfolio is bad, right? So it's not really the first order problem that you should be worried about. Like you should be worried about what does it say about the state of my portfolio if I'm actually bogged down spending way more time than I can handle with my portfolio. Yep. That was kind of like the main argument that I would bring. And I think that's still true. Like, you know, I mean, granted, but I'd say, I think I probably spend about 30% of my time with With founders, but like my existing portfolio founders, but it's not always negative, but I'm okay with that. The other side, and of course it's cyclical, right? The other point is like, once they raise a seed round, they don't bother with me anymore, right? Beyond like a personal level, it's really like, I don't have much responsibility. It was a small kind of first check. Yep. If I was to expand on that argument now, It's, um, I would basically say that, you know, you have to think of, of, of what your role as investors, I think like effectively you're in 3 buckets of, of VCs and like, or where you, or where you could be in a relation to a founder. And so the 3 buckets that I generally think about that VCs try to compete for to some extent are being the biggest investor, the most helpful investor, and the first investor. And, uh, I think obviously, like, you know, the biggest investor is largely an uncompetitive place to be, particularly as like a smaller fund where it's like, you know, you have the Andreessens and the Sequoias and the General Capital, like that's their game, right? Like, you know, that's—

The biggest investor is not a competition. It's just reading a list.

Yeah. Yeah. Yeah.

Right.

Like, so take that off the table, right? So that's off. And so then you're left with being the first investor and the most helpful investor. I think the problem is. Most GPs are interested in competing for being the most helpful investor.

Yeah.

Uh, and like, and that's also the narrative that they try to sell to their LPs, which is inherently complicated. And so I'm like, and you know, I've heard, uh, you know, Boost talks about this. Actually, this is something I kind of derived from what Brayton at Boost, I think, tweeted about actually. And I thought it was like a very good summary of it, but I'm like, okay, what I've found is that founders love you for being first. Basically, right? Like you will always have a very special place in the founder's heart for being the first person that gave them money. And like, I'm like, I inherently don't have to compete a lot for that because like the reality is most of the VC money on the market is not particularly interested in like, in being the first investor in some kind of like really wonky off the beaten path kind of thing, right? Like, and so if I sit there and I like something, I probably don't have to really compete for it. And that founder will love me forever if I'm first, right? And so I'd much rather try to play that game than play the most helpful game. That's to say, not that like, you know, I'm not trying to be unhelpful, right? You know, I'm still obviously, if you could be first and helpful, that's great. But like my moat inherently, so to speak, as a fund is not to be indexed on let me be the 12th investor than try to be the most helpful one.

So then does that make it when you're evaluating a new founder or a new startup, Does it prejudice you in any way against startups that have other interests? Like you almost, by the time there's multiple funds interested in this startup, you're already too late?

So this is the one beauty I think I have about like my current setup, which is, which is, um, you know, structurally speaking, the solo GP setup where, you know, and I don't have, I'm the IC, right? Like it's literally me. So like the, the IC goes as my conviction goes. Yeah. And, um, I mean, there have been scenarios where I meet companies, um, maybe I meet them a week earlier than let's say like a crowd of other VCs, right? But, you know, you could argue that like it's pretty close to each other.

For sure.

But I just get in first and basically end up getting a better deal because I'm like, I can build conviction on that company in 3 days.

Right.

And be like, I'm in here. Like, I'm going to be your first money offer, take it or leave it. So in a lot of—

Speed, it's speed of finding the founder. It's like early, as early as possible finding, but then also speed of decision-making and those So if you start absolutely with each other.

Absolutely. And, you know, and again, I have been in plenty of rounds, particularly this year. And I'm sure you probably see that on your side, the data that, you know, there are a lot of rounds that, you know, of course with safes, there's no such concept really as a round in the literal sense. Right. But, you know, like if you think of these tranches of money that they raise that like, hey, they raised some tranche of money in a 3-month period, but, you know, the cap at the end is 2x what it was at the beginning. Right. Like, I'm sure you've seen a lot of that because I've seen a lot of that, like just anecdotally. I can

just tell you, I mean, running the thing as a, as like a behavior channel for founders. To me, I'm always thinking that the tranched financings, there are some founders who do it sort of, I wouldn't say on a lark, but it isn't super planned. It's just, oh, we hadn't already totally thought. And then there are some founders who are very structured and say, we're going to offer you at this cap this week, back to us in 10 days, it's going to be another cap. And it's like, oh, I know. You know, it's like the, it's like early sale tickets and then presale tickets and then regular sale tickets. That, that model strikes me as ripe for, uh, for disappointment on the founder end.

Yeah. You know, if I used to see that, that the latter version, like the kind of preplanned one more, I think like 2 years ago, I think I've seen this kind of like, basically that like the safe cap today is not actually meaningful number anymore.

Yeah.

Like that's the sale price today and it's just very demand driven. I've seen that a lot this year, but I think that I also, this is actually something I noted to my LPs earlier this year, right? Whereas like I started to see that I was like, see, this is why we're actually getting plenty of benefit from kind of doing this like very quick, very early process. I mean, I cannot tell you how many rounds I've invested in this year that if I had waited 3 weeks, I would have been priced out, right? Because I'm valuation sensitive and like ownership sensitive as a small fund. I couldn't have done that deal had I waited 3 weeks on it because the cap went from $8 million to $18.5 million in 3 weeks. Right. And I did it at $8 million. Great. Wonderful. Like fits into the model. Like I can't do it. I can't do a deal at $18 million, particularly not a deal that's so literally as risky as it was 3 weeks ago. Yeah. Um, you know, where I'm like, I feel like I'm getting no risk return. Like the risk return goes completely out of whack. And I think that opens up Pandora's boxes to like What the hell is everybody doing right now? Like, I, I don't get it personally, but, um,

well, what the hell

is it? But that's been a benefit, like just being quick.

What the hell is everybody doing? I mean, this is the part that I think you and I and our friend Dan most agree on, which is, uh, decisions are being made right now that have no real logic aside from momentum. That is the only logic that exists on so many of these decisions.

Well, this is one of the things I think Dan writes about quite a bit, or I've seen him write about it quite a bit, which I think is, is, is, is really on the money. Um, and, you know, I see this on the GP side, obviously, like, you know, in terms of, in terms of, I've seen peers kind of talk in this paradigm where, you know, there's this idea that, you know, um, co-investors, uh, founder credentials, you know, are kind of popular or seen as some sort of indicator of future success.

Yeah.

And that like, if these parameters are true, so if this is a company that has like a founder of this profile in this space with like this much capital allocated to it, it's more likely to succeed than like the alternative one, right? That's maybe, you know, where those parameters are not true. And, you know, there's obviously, you know, I think everybody that's honest about venture knows that that's not really true. Like those are not indicators of future success at all. But I think the problem is, is like a lot of people do believe that, right? Whether they might make the intellectual argument that they don't, but their behavior would suggest otherwise, right? Bank figure or something. And I think that's something that's always been true. And I think, you know, again, it's, it's, it's, it's okay. There's one step back I'll take to all of this, right? And, and, and, and You know, there's, I always think about this one scene from The Big Short, right? And again, I don't know if this was a real email or not, but they kind of relay this email that Michael Burry sent to his investors in that movie. At least I don't know, maybe he actually wrote this email, maybe he didn't, I don't know. But in any case, he says, you know, I don't remember verbatim what he said, but it basically amounted to like, you know, I'm kind of convinced that, you know, LPs are not putting their money into the funds for the purpose of sheerly just making money, but like they want kind of like familiarity and authority to that familiarity. Yep. And so that basically means, I think if you kind of apply that to venture, I think you do see a lot of that behavior. And I think that comes from the LPs all the way down through to the founders, right? That there are certain themes that LPs are interested in that GPs are mandated to execute on. And, you know, the GPs would much rather be wrong with taking a familiar bet than taking an unfamiliar bet, right? Yep. I don't think any GP is gonna have angry LPs for saying, You know, let's take like, you know, robotics training is like a big thing now that everybody agrees on, right? It's a pretty consensus startup idea. Nobody's going to get, no LP is going to get mad at a GP for taking a bet on like some Stanford PhD team that has like, that's like, that's, that, you know, has cited work and all of that is doing something in robotics training that doesn't work. They're probably not going to get that pissed because it's like, yeah, everybody can, again, has this sort of fallacy and assumption that that chance of success is higher. Because we associate Stanford and these kinds of things, let's say in this case with success and like the obvious big market or whatever. But you know, you might get an angry LP if you invest their money in, I don't know, like a flying boat from some dude in Germany or the only investor in it and it doesn't work, right? You might have some LPs that are not happy about that because they're obviously in retrospect, you say, of course that was never going to work. It's a crazy idea. And who's this guy, right? And whatever. And And I think a lot of GPs just subconsciously don't want to take that risk because I think everybody's always kind of quietly worried about the next fund, right? And like, if you have some of these duds on your portfolio, right, particularly before you have any strong DPI numbers to talk about, which we all know is like, doesn't really become a topic until you're raising maybe your fund 3 or fund 4, right? Where you can realistically point to actual DPI numbers and be like, I have real track record. You know, they're going to be conscious of, uh, of not taking these kinds of weird risks that end up being zeros, right? They'd rather have more familiar zeros. Um, and I think, I think that's part of it. Sorry. The other, the other part, and I think this is the part I'm like really becoming more convinced about is, um, I don't think people like, you know, I think the promise of venture capital in theory is supposed to be that, hey, we're going to back some pirates that are doing weird stuff that could work at some point, right? And if this works, it becomes huge. And it's a very long-term bet into the future of seeding people to like, you know, building something that in 10, 15 years would be successful and like have some sort of meaningful economic impact, scientific impact, whatever, right? There's economic value that's driven through it. But it's a very like kind of like aspirational, long-term, like, you know, optimistic, like internally optimistic play.

Yeah.

I feel like venture capital has become, and, you know, I think maybe some of the structures of like, you know, around LPs and all of that and fundraising, whatever, maybe contribute to this, but I think it's become inherently more cynical where I do not believe that most venture capitalists are investing anymore, right? They're where they're like, we're just going to invest in something that makes sense with, with, with, with, you know, with some nebulous idea of a big future return. I think they are actually explicitly trading. And I think this also pairs well with the fact that like, you know, something that's talked about a lot in VC circles, obviously, and I'm sure you probably have picked up on that, is that, you know, IPO windows have obviously collapsed, right? There are not nearly as many IPOs anymore. Like M&A regulatory environment is hit or miss. Yeah. So people are obviously talking a lot more about secondaries, right? And so I think also spurred on by that, you're really getting to a position where I think a lot of GPs are making the consideration of, What is the company that I could invest in that I could likely trade and make a good trade 2, 3, 4 fundraising rounds down the line, right? And, you know, maybe, maybe return, maybe make some sort of trade that returns my funds by dumping those secondaries onto whatever the next, whoever the next investor is, right? Rather than thinking about it like I am just kind of more eternally optimistically investing in a company that I think somehow, some way will become very valuable. Because of what they're doing and they're successful doing it. Right. And I do understand that. That's not to say I don't want to poo-poo the idea of like figuring out how to get liquidity out of your positions. I think that's obviously our job as managers as well. But, you know, I think that it does sort of, this sort of trading mentality does kind of take away from like the actual really like getting into what could be the really big winners and like the things that actually somewhere down the line get you like the really big liquidity payout. ranked it in a much more nebulous way. Like this sort of trading thing is a lot more tracked, right? You get into, right now you get into an AI company early enough, I'm sure you could build the assumption that this is probably gonna ride momentum for another 2, 3 years enough that at least I could exit my position even in 3 years at some kind of nice, like, you know, IRR, at least on that investment and get out of it, right? And like, you know, I feel like there's a lot of that going on. Like whether people wanna admit that or not is a different story, but I really think that that's kind of like the The thing a lot of people are really doing right now, a lot of GPs are really doing.

So that brings up 2 further questions then. The first one, just onto the point that you just made, do we need more VCs?

I think we need more VCs, but not in the way that they're currently being allocated to. So what I mean by that is, I mean, I like, maybe I'm crazy, right? I don't know. And, you know, it's a bit of a narrow viewpoint, but like, I would, I always sometimes laugh at the fact that I think that some of the portfolio companies that I have that I'm personally most excited about because, you know, I've invested in them, I follow them for months, like obviously I'm aware of what they're doing and I'm really, really excited about like what their prospects are. I'm like also of course within the prospects of like, hey, I think these companies, this company could really make me a lot of money and I have a very clear narrative as to like how we can do that. Let me see if I can like, yeah, there we go. Like kind of fix the lighting a little bit, but, um, uh, what was I saying? This is obviously the part you can edit out, right? So I'm very optimistic about these companies, but no other, like literally nobody wants to give money to them and like no VC. And so like really there's some companies, I think there are at least 4 or 5 companies out there in the world where the only investors that seemingly are crazy enough to put money into them are me and Boost VC. Literally like that's it. Like nobody else wants to touch them.

So what does that mean for your— do you have to be certain that they can get by with just your money then? Like, how does that—

You know what, the thing I found, like, the reason I'm not scared of this is because I found that when you find these like really idiosyncratic founders that like are doing like really weird kind of off the beaten path stuff, and they're like, they're inherently more inclined to be deeply passionate about it because there's no virtue signaling in doing it, right? Like right now, Like, you can go to SF and find a robotics founder. I think you probably have to do a lot of diligence about how serious they are. Yep. Because, you know, you kind of know that robotics is the hot thing and a lot of people are going to run after the hot thing. And so like, how committed are they to this problem really? Like the oyster farm guy I'm talking about, like there's no virtue signaling in building a company like that. So you have to actually be nuts and convicted enough to actually try this kind of thing in the first place. And so the thing that I found actually with these founders is they're very good at Figuring out ways to keep themselves alive and just staying in the game, right? And like a lot of them at some point they get the tailwind, right? Like, and there are a lot of cases I think where like it's nothing, nothing, nothing, nothing. And then at some point it really kind of takes off, right? But you have to obviously stay in the game to do that. So these, it's kind of like idiosyncratic founders tend to be really good at that, like in my experience. So that's kind of like the one, the one thing. But I think as far as the more VCs question go, what I basically mean is that like You know, you've probably seen this too, right? There's this like, there's this like very big deal concentration right now. So what we don't need is we don't need more LPs to give money to GPs that will just put money into the same companies that are already getting money. We need LPs to give money to GPs that will do weird stuff that maybe a lot of other people don't want to touch. And it's like very on the fringe.

Yep.

It kind of like more cases like that, right? That you have a lot of companies that are just in the game, they're being backed by some random specialist, also kind of nutty VC that could just stay in the game. At some point, maybe something big comes out of it, right? Like, and I think we need more of that because I don't think there's enough of that. And I feel that a lot right now. Like, I see a lot of founders, like even ones that I pass on where I'm like, I have my own reasons for passing, but I think they are very backable by a VC that's maybe more kind of like sector aligned or kind of experience aligned with them. Like I passed on a bunch of people that I thought were like, really great, but they're just doing stuff that I don't really understand because it's not my, my, my kind of my world. I'm sorry, like I'd rather not allocate to it, but like as a founder, I think really interesting. And they're actually, they're very like, they're very, they're very interesting founder. They're just, you know, but, um, and they just don't get backed, right? They don't get backed by anybody. And then you see these kind of like, I don't know, like very, I don't want to call it mediocre, but like really dime a dozen deals and they go and they raise like $5 million and whatever. And I'm just like, this doesn't feel like You know, the allocations are being done correctly here. So

there's any real good arguments to be made that VC, like LPs are perfectly allocating to the asset class. I do think that there is, there are strategies that are consensus strategies that can make you a decent amount of money.

I agree.

And those, as you mentioned, no one gets fired for You know, investing into the Stanford PhD in an area where that Stanford PhD has experience, they just go, ah, well, that was the right call. Just didn't work out this time. Startups are hard.

Yeah.

And kind of like move on. So I can see why the consensus flows like push money towards more easily understandable things. And I'm completely with you that the more bizarre and weird investments are, have the have the potential for outsized returns. I guess my last point is, do you, are you like removing yourself from deal flow that is consensus? Like, do you not hang out at Stanford? Right. Do you, like, how do you find these founders or where do you spend your time in order to avoid consensus?

Yeah, it's, it's, it's a, it's a good question. I mean, part of it is just even why I like live geographically, right? Like I live in the DC area and I think when I first started this fund, I was a little bit more on the fence about like, should I go live in San Francisco for like the, you know, like I used to live there. I moved away. You know, for like very obvious reasons, obviously, right? That, you know, I don't think I need to recount here because everybody knows, you know, why would you go to San Francisco? But I think as time has went on, I've actually appreciated not being there more because, you know, I have established networks there. I mean, I'm like close with a lot of the kind of big funds there. Like, you know, I have my network. I see what's going on. I have, of course, I travel there, you know, a couple of at least a few times a year as well. So, you know, you get a sense of what's going on. Yep. But I'm kind of in a world where like, you know, I don't really, I basically sit on my own island. And so I can basically sit here and constantly just make my own view of the world and invest the best on it. Right. And I always think that like, you know, I always say that like for every GP, this is true, but for me, I'll definitely say it that I think that my LPs gave me money because they trust my judgment and they want me to exercise investments on my judgment. Not on the judgment of what I've crowdsourced from 10 other people and then just kind of take the consensus of those 10 other people and then invest on that insight, right? And so it gets easier to do that to be removed. I think that's the one thing. So you come up with, first of all, you come up with like wonkier ideas that you kind of pursue. You know, so like for example, I've been putting a lot of my kind of like outbound energy into Zurich because I think that that is, you know, I have a lot of context on ETH Zurich and the university there, but Um, you know, I, I've, I felt that from an American venture perspective, it is a completely underappreciated market that actually has more, I think has greater talent density than San Francisco, which I know somebody watching this will probably like punch their

desk. They just threw up into their hands.

Yeah. But, but like, I generally think that like the baseline of technical ability there from people that you're seeing around ETH Zurich is higher than Stanford or anything like that. Um, and, you know, so I'm kind of like, okay, there's like a market arbitrage opportunity there. So like I do that, right? I find people that are doing weird stuff on Twitter and just DM them, right? Like, um, I fortunately, I always say like one of the best, the best ways to see cool deals early is just like you get your founders to refer deals to you, right? And so, you know, obviously that's, that, that compounds over time, right? The more founders you invest in doing weird stuff, the probably the more new founders are going to be doing weird stuff. Right.

And

even like other things, like, you know, like because I think like my taste is fairly well defined, like, you know, and again, it's a bit out there. Like, you know, there are a lot of VCs that just know my taste. They're like, hey, this is something you might like, right? Like we passed on it, whatever reason, but like, or maybe when we did it, we're interested, I don't know, whatever it is. Like this seems very like up your alley. Like a lot of times it's like, this is super cool. It's something I'm really interested in, right? And so, Yeah, I think it's a combination of living in your own headspace to some extent, because I think that's what your job is as a GP. Founder referrals. So like, I do think founder relationships, as much as I was kind of like making it seem transactional a bit earlier, like, you know, I do think there's a human element to all this. Like, this is a people business at the end of the day. You know, and again, just generally, like on that note, is like people just knowing what your taste is and what you're, you know, kind of what you bring to the table. And that kind of fuels itself a little bit. So I'm gonna ask for something, be weird, right? You know, stand for that, right? Be known, be known for something, be known for not being a follower. I think one of the things a lot of GP, like a lot of GPs don't appreciate is founders really love VCs that have like very clear positions, right? And I think that like in terms of what they believe in, how they're willing to invest, how they explain their own process, how they run their process, right?

Yep.

You know, they're like, they, I think founders feel when their GPs or like VCs that really like are very explicit about how they play their own game. Yep. Uh, and they actually execute on it. I think they do not have respect. And this is totally irrespective of check size, by the way, of the ones that are very explicitly followers. Um, and they kind of blow with the wind and, you know, it's like, hey, we'll invest if this fund is in, we won't invest if they're not in, like They're toast, right? Like, and so I think that's how you win. Like, ultimately this is a founder referral business. I think first and foremost, I think that just sort of like the first step was how you win founders, right? And so kind of a lot of it just comes downstream from that.

I think that that is a perfect note to wrap this up on. I mean, the idea that GPs, I'm completely with you that GPs, I want to see more weirder stuff and more distinct from one another. You know, the joke on VC is you're selling money. It shouldn't be that hard, but given how crowded some of these early stages, and especially as these mega funds work their way back into the beginning part of venture, like selling money gets harder when there's a lot of money floating around, especially for if you have credibility stamps as a founder that allow you to like play in those consensus areas. So look, man, I, I, uh, you know this, but I think that we need more VCs who are doing weird things. And with weirder founders. So I appreciate what you're building with EarthLink.

Appreciate that. Yeah, I completely agree. I mean, you know, I try to do what I can also to try and encourage that point of view as well, right? You know, that like GPs should feel comfortable in getting weird, right? And everybody wins, I think. But there are tangents I could go down, I think, that are even more cynical about, you know, about like why a lot of things work the way they do. But

We can, we can save that for the next part, but yeah. And thanks so much for, for, uh, for joining us today, man. Appreciate it.

Of course. Yeah. Appreciate it. Thanks, Peter. Thanks for having me.