AngelList CEO Avlok Kohli: The Funding Market Today; Last-Mile Delivery; Competing w/ Carta | E1005

Let's not have meetings about meetings or process about process. None of that shit matters, right? The only purpose for a company, it's just a group of individuals that are coming together to build product for your customers. Any process, anything that gets in the way of that, crush it. If we have too many meetings, cancel the meetings. Like I'll regularly go cancel all my meetings on the calendar because all that really matters is that you're shipping products that your customers love and anything that gets in the way of that and you drag, kill it, crush it. And just focus on speed.

Avlok, I'm so excited for this, my friend. It's been a while since we last had you on the show, but I want to start today with a little bit of context. So how did you come to be CEO of AngelList and what was that entry to the role for you?

Yeah, so the background is Naval, who's one of the founders of AngelList, had been an investor in all 3 of the companies I'd started. So I'd started one company in 2011,, then another in 2014 and then another in 2017. And Naval was an investor in all three. And when I wrapped up the acquisition of the last company, I stepped back and was effectively going to just focus on investing. So semi-retired life at that point for me since I wasn't building anything new. And Naval approached me to consider stepping in at AngelList as CEO as he'd already stepped back. I believe in late 2018, if I remember correctly. And it was, you know, originally it was a hard decision, but I said, hey, it's probably not the right fit. I was just coming off of the last startup. And as you know, startups are a marathon and it gets quite intense. But the idea of AngelList and the concept of AngelList just stuck with me. And we kept talking every week, every other week., and 6 months into it, I fell in love with the, uh, opportunity and officially accepted in mid-July. And, uh, Naval said, can you start tomorrow? And that was it. And it's been crazy ever since.

Now, before we dive into some of the craziness, I just have to ask about one of the startups you founded. Um, believe it or not, um, you know, last mile delivery is a, a passion area of mine. Um, and so my question to you is, I know Gokul, um, obviously, and you kind of coincided around this, uh, with Fastbite, which was 15-minute delivery, and it was the first 15-minute delivery startup. What were your single biggest lessons from the Fastbite experience? Was Gokul's question.

So it was actually average delivery time was actually 7 minutes, even though we billed it as 15. I would say I'll actually share two of the lessons. I think first one is building for yourself will lead to a much higher probability of building something that people love. Because when you're building for yourself, you then just need to believe you can find other people like yourself that are going to use the product. And the second one, and the reason I wanted to add this one, is you want to think about the variables that you can optimize for the utility function of your product. So every product, any product you use has some utility function. The utility function could be price, convenience, speed, right? Anything. The customer experience itself. And you want to think about what are you optimizing on? Because different products actually have different diminishing returns. And as you think about really fast delivery, you can optimize on the delivery speed. But then sometimes people actually don't want it to be as fast, right? They actually want it to be a little bit slower. And so that was a pretty good lesson for me in terms of how to think about overall product experience. It isn't just about a single variable you want to optimize on. You want to optimize on multiple.

Gokul made a special note of saying that it was really the first in market to do this. How important do you think is being the first?

I don't think being first in market matters all that much. And before I get into the answer for that question, I'll introduce the idea of the concept of Idea Maze, which I believe Balaji had coined. And I think there's a post on A16z's website on it. And the Idea Maze basically talks about how every entrepreneur has to go through this journey of looking at an entire industry and looking at all the twists and turns. And they base their business idea and their strategy accordingly. And if you're first to market, you're effectively building the idea maze for all the other entrepreneurs that'll come after you unless you navigate that idea maze yourself successfully. And we've seen a ton of examples where sometimes first to market isn't the company that wins the market. Google, I believe, was the 17th search engine. iPhone was not the first smartphone. And so the way I think about first to market is it doesn't guarantee success. And you should probably assume you're building out the IDMAs for all the future founders that will benefit from your work.

I find so many investors oscillate on defensibility. And I think it's just complete bullshit, especially at pre-seed and seed. Do you agree with me in finding it completely useless at pre-seed and seed? Or do you think there is inherent defensibility within companies?

So let's define defensibility as the cost to replicate your business as time goes on, right? When we say defensibility, when we talk about moats, what we're really saying is how easy is it or how costly would it be for someone to replicate your business and compete with you? So definitionally, you don't have any defensibility on day one because you don't have a business, or even day 30 unless you magically get, you know, pretty large network effects. And even then, I would, I would doubt that because that means if you were able to get a large network within a few days, I mean, someone else can do it as well. So I agree with you. I don't think there is any defensibility on day one.

Final one, and then I promise we'll get to the schedule. But what did you think when you saw the host of European 15-minute delivery companies launch?

I thought, hope to God they are keeping track of the capital markets. Because anything in logistics, anything in online, offline to online or online to offline just requires a lot of capital. And capital is really a function of the capital markets and the macro environment. And so when I saw a lot of them launch and I think some of them also were in New York, the number one thought that went through my mind was I hope they're keeping track of the capital markets because they will need a lot of money to scale.

Do they all go bust in the downturn?

100%. Because the cost of capital goes up. And when the cost of capital goes up, you can't invest into launching new cities and you can't invest into what typically ends up being the J-curve of this type of a business where you end up losing money every order. And then at scale, it's, you know, it spins back up and it does work, but you need a lot of capital to sink in.. But when the capital markets dry up, interest rates go up, you, where are you going to go get that capital? It is near impossible.

We're just killing industries one by one on 20VC. Last week we were like, direct consumer subscription model does not work. Boom. Now we've just killed a whole nother industry there. Good. Glad that we are continuously losing friends. It's me that takes the heat for this, don't worry. I do want to, we spoke about kind of funding markets there. I want to talk specifically about the funding market that we have today. So much has changed and you have this incredible purview at AngelList. What are the most notable changes that you are seeing in how companies are getting funded given the unique seat that you have?

Yeah, so for, for context, AngelList supports 20,000 funds and syndicates now, and we manage a portfolio of more than 13,000 startups across, uh, all of these, uh, funds and syndicates. So we have a pretty deep broad view of the industry. And when we manage the investments for these funds and syndicates, we're actually the signatory on the funds. So we also receive all of the deal documents for follow-on rounds, all of the cap tables, all of it. Now, of course, this is being done on behalf of the funds. You can effectively managing everything for the fund. And so from that purview, we actually do have a pretty deep understanding of what happens in venture. And we actually track on a quarterly basis, to put it really, really simply, the good times and the bad times. We actually have a chart that we publish every quarter now, the rate of activity, or it's actually called the boom times and the bad times. And on this chart, what we have is the activity rate as the x-axis, the positive activity rate as the y-axis. Activity rate you can think of as what percentage of startups actually had an investment, right? Some sort of an investment. And the percentage positive activity rate is what percentage of those were actually up rounds. So you can generally sense that if you have a high number of investments and then high number of positive activity, you're going to have a dot at the top right quadrant, which is boom times, awesome, right? And I actually have it up here and 2022, like early 2022 and 2021 is like this top right quadrant, boom times. And then now it's actually the bottom left and it's actually one of the worst bad times where not a lot of startups are actually even getting an investment. And of the ones that do, a much smaller percentage actually have a positive investment. And so we're actually in the, the depth of the bear market, if you will, for venture right now. And that spread between where it was in the boom times and the bad times is the farthest distance it's ever been on everything that we track.

Is it a different time length between the highest and the lowest than traditional? Like when you compare back to prior chasms in those two dots, is this a faster compression timeframe between those two dots?

It's incredibly fast and it's actually incredible that that distance is also incredibly large. So typically when you have these dots that collect and it's reported every quarter, they're all kind of collect, you know, pretty close to each other, right? It's like, okay, yeah, there's a little bit of variation quarter to quarter. And the gap between early 2022 and right now is like the farthest it's ever been and the fastest it's ever contracted is the best way to think about it.

But people still say prices remain the same, especially at pre-seed and seed. And honestly, Avlok Kohli, I think they are staying the same.

Yeah.

So help me understand this because to me as an investor day to day, they are still really high prices, but you are telling me that actually it's never been a greater chasm. Where's the disconnect here?

So the disconnect would be in the pre-seed and seed market versus the Series A, Series B, Series C market. So as we look at follow-on rounds and the up rounds or down rounds, those typically happen at the Series A, B, C onwards. And that market is absolutely compressed pretty significantly. I mean, you're talking about deal volume in Series B down more than 50%, valuations down more than 50%. Series A is also down. Series C is basically gone, right? Like, I mean, you don't really hear of many late-stage deals getting done anymore. It's very— it's rare. And what's happened actually at the pre-seed and seed stage is all of the different investors that were investing later stage, some of them have started moving earlier and earlier. And so you just have a larger number of investors who have a lot of capital to deploy. Well, where are you going to go? You're going to go to pre-seed and seed. And so what you have is you have pre-seed and seed, they're buoyed. And we don't see that changing. We actually still see that staying the same and the valuation staying the same, maybe a little bit of compression, but but we're not gonna see it the same rate of Series A, Series B, and onwards, which I know isn't good news for, you know, for, for you where, you know, it would be great for, for pre-seed and seed valuations to compress a little bit, but I don't think it'll happen.

So I think there's also an additional component here, which is also bluntly the check writers at the multi-stage funds who are writing those pre-seed and seed checks are actually principals and associates because their partners are saying, hey, Avlok, I'm underwater with my board positions. I'm fighting so many fires. Go and write $2 million checks and be in market. It's good for the brand. And so those new check writers are less price sensitive than ever. They're more excited than ever because they're writing their first checks and it's creating this increased, less price sensitive capital entering seed, meaning the prices are where they are, which I think is, is really telling. Can I ask, Do you not think that Series A is just a shit market to be investing in right now too as well? Reason being, any good companies have had everything preempted by existing and anything not good is out in market. And so there's this real adverse selection. Are you seeing that too in your data?

What we're seeing in our data is that only the companies that actually have credible traction are raising now. So even if you put aside adverse selection, meaning the set of companies who are raising from insiders, and insiders are leading the rounds. We're definitely seeing a set of companies who just can't raise at all. They cannot raise a Series A, cannot raise a Series B. And for them, the capital markets are all but shut down. Then you have to look at the set of companies where they're raising from insiders or they have a new outside lead. I would say that we're not seeing anything in our data that distinguishes between the quality of either of those companies. Now, definitionally, if you have an insider that's going to lead your company, like a true lead, I'm not talking about an extension, right? Of like, hey, let's give you a little bit more runway. No, it's Hey, we're going to, we're going to, we're going to invest a significant amount of capital for a little bit more ownership in your company. That, that's a real lead, insider lead. We're not seeing as many of those relative to the total number of Series A deals that are getting done. So I can't comment on the distinction in the quality of those companies since we don't see that.

Is the structure of seed rounds and pre-seed rounds in terms of the investor types, is it changing? Is there more party rounds because traditional institutional investors are more quiet, are there less party rounds because the tourists have gone? What are we seeing in terms of the structure of those rounds?

Let's define party round. If we're talking about party round as no investor is writing more than 40% of the check, so there's no lead, I would say that we are seeing, we're seeing the percentage of party round to non-party round actually being the same, but the overall volume has contracted. Now, the set of companies that could have raised on just a party round in terms of raising a little bit of capital, not hitting their target, those are gone, right? So what you, what was happening in the heyday of 2021 and 2022 was that companies would just keep raising these successive rounds and we would see it like seed, seed plus, seed plus plus, right? They just keep going. On and on and on and always just raising a little bit of capital from like these small set of like party round investors. That's gone. We do not see that anymore. Those companies literally cannot raise anything at this point. But we are seeing companies still being able to raise from investors where there is no lead because you do have several investors all come together to kind of create the round. So we're not seeing that lead investors are absolutely necessary for a round to get closed, especially at the pre-seed and seed stage, right? You're you don't need a lot of capital to get started and to close a round. But if you're getting to a larger seed round, right? Because let's keep in mind that seed means $2 million or $5 million now. It's $2 to $5. So $2 million, you can do a party round. $5 million, it's much harder to do a party round now. So I think we have to also distinguish between the size of the raise itself.

Is the time to raise a pre-seed or a seed round, is that increasing or is it the same?

So time to raise a precedent seed is definitely increasing. Also, the time to markups is also increasing. And what we actually looked at this in our data where we looked at a sample size of the investments over the last 18 months and we compared it to a sample size of the investments over time since 2015. So and what we were looking at was let's not compare it to the heyday of 2021 and early 2022. Let's actually take a look at historical averages. So how are we doing today relative to historical averages. And when you just take a look at that sample size of companies from today, same size of companies in the historical average, we're actually seeing a 33% drop in companies in terms of how many companies we expect would have raised by now. Right. And so that's a pretty significant drop, like 33% is high. And what that's telling us is there is a— there definitely is a freeze in the market relative to historical averages. And there's a lot of repricing happening. And there's a lot of still founders coming to terms with the new norm, the new normal, right? I mean, if you're going to raise on 200x ARR, and now all of a sudden, you're being told it's actually like, maybe 20, maybe 10. I mean, that's, that's, you're coming to terms with brutal reality at that point. And so we still think we're in the thick of it. And we think it's going to take another few quarters before everything just works itself out.

Harry and Avlok Kohli crushing one industry and then bringing you brutal reality. This is the positive show for you. I know, I just, I totally agree. And I see the same thing you mentioned that kind of cram down to the kind of deal structures.

Yep.

In your data, are you very much seeing the repricing begin or are you actually seeing So many companies have so much cash that they're not needing to come back to market.

It's the latter, but it's starting. We're starting to see it. So in Q1 so far, we've seen 48. All right. And so it's 48 flat rounds, down rounds. These would be, these would be the, the pay-to-plays, pay-to-plays. And so we're starting to see a tick up. So it's definitely ticking up from, you know, Q3, Q4. But we don't— we think that it's still early days and we think it's more the latter of the scenarios you mentioned where startups do have a lot of cash, right? Because if you raise a lot of cash, you go through layoffs, you increase your runway. So you've actually pushed out your cash-out date. And so you buy a few months, right? And it's logical, right? You're playing to your incentives. Buy a few months. Hey, maybe Jerome Powell changes his mind, right? Maybe they bring down the interest rates and it'll be boom times again, which I don't think will happen. But that's my personal opinion. And so what's happening is the cash-out date was— has been pushed out for a lot of companies. And so our, our view is that these will start ticking up in Q2 and then definitely Q3, Q4, because these startups, they have a brick wall, right? Investors don't really have a brick wall, right? Yes, there's a deployment period. You have to deploy by all— by a certain amount. But in this market, I'm sure fund managers can go back to LPs and say, hey, I'd like to extend the deployment period. Great, not a problem. Go for it. That's much easier than having a startup who does have a cash-out date and has a brick wall that they're going to run into. And so we think that's going to start coming into play in the next couple of quarters.

Do you think we'll see a spree of acquisitions, a consolidatory environment occur where bluntly some of the big incumbents pick up great teams for nothing? And, you know, companies can tweet that they got acquired and want a successful exit and, you know, bluntly no cash is returned.

I don't think so. I know I'm probably departing from the conventional wisdom on this one. I don't think so because I think if you take a look at the companies that could be acquirers, you have public companies and you have private companies. With public companies, they themselves are going through a pretty brutal rewriting of what the new guard looks like, of what the investors are expecting now. And investors are looking at not just the cash that your business can generate, but also your stock-based compensation. So gone are the days of like constant, you know, dilution of stock-based compensation and hiding it from all of the investors. That's basically how it was being done in the public markets. And so I think they're gonna be under intense pressure and you're seeing it, you're kind of seeing it across the board, even with some of the big tech companies. So I think, the appetite to just do rapid set of acquisitions in this market, I don't think is going to happen. And then in the private markets, the key question that's going to come up is what price do you believe? Right. Meaning if you're a private company and you've raised and then there's another private company that you're looking to acquire, then the key question comes down to how do you align on what the price is to acquire the company? So I don't think I don't think the conditions are there for a rapid acquisition spree unless these are like rock bottom prices and it's just like, you know, just, yeah, I mean, literally you're getting an amazing deal, but I don't think that's going to be good for employees or investors.

I don't think it is good for employees or investors, but I'm saying for zero and I still think it wouldn't happen because I don't know many private companies that are like, yeah, we've just got rid of a load of people to reduce burn. But no, we're going to make this acquisition and bring on 20 more people because the cost isn't zero.

Exactly. It's not zero. It's also additional overhead for the private company to take that on because even if you just acquire the product or the IP, even then there's a cost of integration, right? And I've been through an acquisition. I've been on the other side of an acquisition as well. And these are, these do take time from the company. So yeah, my read on it is we're not, we're not going to see a lot. And again, because we're the signatory for all of the funds, we also see M&A and, and we, we've seen that the M&A, even within AngelList data, M&A has gone down pretty significantly.

How do you think that will continue or change over the next 6 to 18 months?

I think it will likely stay the same. Our view is actually a little bit more pessimistic in terms of just the broader market. So if you— if we look at the next 6 months, I suspect it'll be the same because the current macro sentiment is higher interest rates for longer. So that's a lot of downward pressure on venture as a whole because venture is a risk asset. Now it's, it's, you know, for some investments it's a great risk profile, right? You invest and you get 10,000x. That's awesome. At the same time, as a broader bucket of capital allocation, it is not— it's getting compared to earning 5% risk-free. And all of a sudden, a lot of people who typically would invest in venture are saying, maybe I'll just put it in US Treasuries. So I think there's a lot of downward pressure on venture. And so we just— we don't think it's going to change in the next 6 months, next 18 months, maybe., but you would need to see, uh, in the interest rates starting to come down and starting to see some signs of recovery in the broader market, inflation subsiding. So I would say the summary of what I'm saying is, uh, it all depends on the macro at this point.

Not only that, in terms of kind of, you know, venture being a risk asset class and kind of the interest rate environment associated, but there's also this real illiquidity challenge within the venture model. What are you seeing in terms of fund secondary positions, people wanting to get out of fund positions, people wanting to sell fund positions, defaulting. What are you seeing there?

When it comes to LPs within funds, we've definitely seen an increase in appetite to sell positions and also sometimes sell positions in name brand, you know, name brand companies that are actually just great companies. And the reason to sell can range from either the investment, their own investment ratios are off, right? They were just caught on the wrong side of like illiquid to liquid, or they actually just have a serious liquidity crunch and are just looking to sell. And so we have seen an increase in it. The key question really comes down to who's the buyer and what's the clearing price. There are deals that are getting done and there are deals that are getting done not just in small funds, but also very large funds. And typically these deals happened more in the background. And typically it's around the LP base shifting, right? So one LP will purchase another LP's position. And the range of discount that we're seeing actually is anywhere from 20%. But what's more common is actually 40% or 50% from last round mark. And so you're talking about a pretty significant discount to last round valuation as the clearing price for some of these deals.

And is that on direct deals or is that on fund positions?

On fund positions.

Okay. But that's not too bad actually. I know that sounds quite like, if you actually look at like other secondary market data, some are as much as 60 to 70% down. Mm-hmm. So I actually almost take positivity from 20% potentially and 50% on a bad day. So I think that's super interesting. I think the one really challenging segment of the kind of funding market in terms of from a fund manager's perspective is the micro funds. These were funds which raised from, you know, founders and, you know, bluntly GPs of venture funds, which is awesome. But they're not writing LP checks anymore. Do you see that trend and how do you foresee the next 6 to 18 months for the micro fund segment?

So we, we track LP commitments based on the type of LP and based on the product it goes into. And, and so, for LPs, we categorize them as individuals and institutions. Institutions are typically— I'm using it more loosely here where it's a— it's— there's a team around it. So this could be a small family office, large family office, and then a true institution within rolling funds, which is one of the products that we have. Both individuals and institutions commitments aren't actually down by much. It's close to only 20%, which is very very, very interesting when you compare it to venture funds. The venture funds are the traditional structure and we have a pretty large venture fund business. Individuals are actually down 60% from like when, when we compare it to about a year ago. So like the early 2022 when there was a significant amount of investment still going in and institutions, this is actually incredibly interesting. Went down and then has in recent, in recent weeks spun right back up and has recovered in our data. And so that, that was the one surprise that I saw as I was going through the data was that the, any of the folks investing in venture funds that are not individuals, they're starting to increase their investments back into venture funds.

What do you think that is? Do you think that's just like a stabilization of certainty? Knowing where we are, being aware that actually rates will likely go up a little bit more. We're all kind of aligned on where we think it will go now. The certainty is more there.

Yeah, I think so. I think one part is certainty. The other part is the technology cycle we're in, which is one of the biggest technology cycles with AI and all of the possibilities of what it can do in terms of net new opportunity and rewriting industries.. And a lot of the large language models and their advancements there have had a major impact on AngelList, just our own internal operations, right? It's been huge and we've been tinkering on it for many months now and it's actually automated a good portion of the work that we do. And so we think it's the capital from institutions recovering is a function of one, a little bit more certainty of what could be happening in the macro market and then also just the fact that we're in the middle of one of the biggest technology cycles since the internet or mobile phone. And that's our hypothesis around it.

I'm not going to let you just like glaze over that, but I do want to just finish on this thread because otherwise I get too distracted. Are we seeing the number of net new funds raising go down significantly or is the number of net new funds same? Where are we at there?

Good question. Net new funds is definitely down. And so the way you reconcile this with the capital flows is the funds that are raising are raising more because they're a little bit more experienced and they have more, more of a track record. The other interesting data point is looking at when does the fund raise the first dollar of capital and when does the fund conduct their first close? Right. And first close is typically when you've raised enough and you have confidence that you're going to hit your fundraising target.

Right.

And we've definitely seen the time to first close has increased. It was 3 months in the boom times and now it is 6+ months. And when I say 6+ months, what I'm referring to is the timeline went from 6 and right now it's trending towards 7. And what this means is even the we've seen even for the net new GPs or funds that are raising, one, we've seen an overall drop, right, in terms of like how many GPs even get to the point where they're like, you know what, I can raise this fund, let's do it, right? So we've seen a drop there. But the ones who've hit that confidence of like, yes, I can raise this fund, let's do it, the time to first close is also extended. So they've— they're taking longer to close than they would have— the first close than they would have actually expected.

Are we also seeing a reduction in fund sizes for those going out?

Yes, there is a reduction in fund size for, I would say, the, the much smaller funds, right? In terms of if you could raise a $5 million fund as your first fund, you're not going to raise that anymore. It's going to be closer to $1 million, $2 million, or $3 million. So we're definitely seeing a reduction in overall fund size actually at all stages at this point, but definitely for the first-time fund manager.

Such a cheery topic, isn't it? Uh, Chris, you, you dangled it in front of me there in terms of bluntly how you're leveraging AI and LLMs to be more efficient and better as an institution. I'm too interested, man. Like, what have you done and what's been the effect?

So a lot of what AngelList does in the background is we manage everything about fund, right? We manage from the initial, uh, legal docs, or sometimes we'll work with, uh, the external law firm. Down to the fund setup, down to regular filings, ADV filings, and then managing the portfolio for 10 years. Right. And all the distributions that come after that. And along the way, when you think about all of the different workflows, it requires judgment, right? There's human judgment. And so it requires humans. Well, with a lot of the work and the advancements on large language models, we can start replacing, right, what we assume needed human judgment to do something. You can actually now replace with code. And we've taken a subset of things that typically required human judgment and we've sort of replaced it with code. And one example for— just to put a finer point on it is we receive— I think it's something like 15,000 emails a week, right, on behalf of all the funds. And, and these are not emails you can just ignore. These are not emails that are like, hey, you know, we'll get back to you in a week. No, no. These are emails where it's Hey, there's this deal getting done. Here's— here are the capitals, your legal docs, like, review. So just a simple process of how do you route, how do you make sure that the email gets into the right place for the right action, right? Used to require a human to manage and route and apply judgment. Well, because we now actually have all of the training data, because we've been doing it for so long, we essentially looked at that as one of the problems of How do you create an automated router? But it's not as simple as like, oh, email comes here and here's a subject line, you send it. No, you have to actually look at the content of the email. You have to look at the contents of the legal docs. So for example, if it's a follow-on round and we're reviewing the docs and the cap table on behalf of the fund, we know that what are the set of documents that we need to complete the review and What we now do is we'll look at the documents, we'll automatically tag, is it a share purchase agreement, a cap table, et cetera, automatically from the documents that we receive. And then if there's a delta, it's like, oh, actually this is missing a cap table. Well, we now know, hey, we respond back and automatically just ask, hey, we're missing the cap table, can you send it? And so that's just one very small example of how we're using it. And we're in a fortunate position that we've just been building up all this training data over the last 5 to 6 years of just doing this at scale. And so when we started tinkering with this, we're like, oh, this is awesome. We could actually just use this and start applying it right away.

Avlok Kohli, I mentioned before we started that I'm more direct with my questions nowadays. So that would lead to cost reduction. It would lead to cost efficiency and bluntly increase productivity within the team. I think I saw recently in a group someone having a moan about angelless pricing for managers going way up. Help me kind of coincide the two, which is like increased productivity, usage of AI to make costs lower, and then pricing going up.

I think what that's referring to is the pricing update we made on funds that are larger sized funds. And if we think about the journey AngelList has been on, it's typically been a— it's a very different journey from most fund administrators and most fund back office platforms. And the journey we've been on is we've actually built software to help automate a lot of what it takes to manage a fund all the way down to financial reporting, tax reporting, etc. And when we, when we launched the fund product, which I believe was in 2017, the very first fund product, it was like a tiny fund. It was kind of like an offshoot of an SPV and it could only do like $1 million because that was the simplest thing we could do. Right. And what we had to do was over the years build more and more software to get more and more support, more and more complex funds, more and more complex parameters like carry hurdles, cashless contributions. I'm sure you've been through all of this, right? All of those little details. Well, to do that in software, it takes time. And so our— the path we've been on is every year you can actually chart and we've done this, the size of the funds we take on and every year it keeps increasing, keeps increasing, keeps increasing. And so today we're regularly taking on $50, $100, $200 million funds, whereas 2 years ago we were saying no to all of them. Right. They were coming in, but we said, hey, we just cannot take you on because we can't credibly serve you for the next 10 years. Because we have a very strong eye towards software and automation to handle all of the, you know, all of the portfolio management distributions, etc., over the years. And so the pricing change that we made was a function of taking pricing that was actually meant for— that was actually meant for funds that were like $2.5 million, $3 million, $5 million, right, from a couple of years ago. And there was a pricing cap that was set. It was like, you know, your— I believe is 1% a year capped at $25K a year, which effectively caps it at $250K overall. Right. And that's for everything. We handle tax, financial reporting, all of it. And all what we really did was we said, well, the fund size that we've taken on has kept increasing and we never removed the cap because that cap was meant for much smaller funds. And it was the change that we made was mostly just removing the cap and then rightsizing it to like the size of the funds. So if you actually take a look at the fund size relative to what it costs today, it's actually similar. And so I think some of that is just our own. I think the way we rolled out the pricing probably caused a little bit of confusion.

Is it a loss leader? Yeah, I've obviously been a wonderful customer and user of AngelList and it's amazing, but I look at them, I go, they cannot be making money. I mean it nicely, but it's a great service and it's not that expensive.

When I—

so like for those small funds, is that a loss leader? When you look at the $25K a year and all that you're doing, what are the margins on that?

Yeah, it's not a loss leader. A lot of the automation that we've built in and that's also continuing to come in keeps expanding those margins. And so anything around funds is definitely not a loss leader for us. And we're— we continue to see the margins around that increase. And the other, the other way we actually think about it is we think about the entire business as a whole, not just— not necessarily on a specific product, because when we think about a GP or we think about an LP, we think about it as, hey, you should just come to AngelList and we'll handle everything, all of your needs around venture going forward. So for a GP, it's all of their funds, all of their SPVs. Okay, great. They're going to go raise AngelList capital. Great. We have a business model around AngelList capital. And when you're a financial platform, there are all of these other different ways of capturing more and more value as you scale. And so the way we look at margins are actually more holistically over for the entire product experience. So all of the products GPs would use, all the products LPs would use versus on any single product. And so our margins are actually north of 80% when you actually take a look at the overall experience and you take a look at overall products that customers are using. And so again, this is the, this is the key around a platform play, right? If you're doing just only a SaaS play, it's a little bit different. When you have a platform play, you actually have products that can feed into other products, that can feed into other products., and I actually learned a lot of this in my time at Square. So Square had acquired FastByte. That's actually how Gokul and I started working together. And when I joined, Square was basically just the payments dongle. And in my time there, I saw how Square went from a payments dongle to a platform where you would literally have one product that feeds into another, that feeds into another, that feeds into another, and you get this compound effect of pretty rapid revenue growth, rapid revenue or gross margin expansion. And so I definitely took a lot of the lessons from there and applied it at AngelList.

Man, I'm loving this. What AngelList product has the best margin today and what has the worst?

I would say funds have the best margins and the smaller SPVs have the worst and for some of the smaller SPVs, those are a loss leader for us. And this shouldn't be a surprise for anyone paying attention. We saw Assure, which was an SPV provider, effectively blow up completely, and they blew up in a spectacular fashion. They basically had took money in from all the SPVs that they were supposed to manage over 6 years or 10 years. And when they blew up, they're like, hey, we don't actually have any of the money left. And so all the GPs were now left to fend for themselves in terms of, well, how are you going to get the money to manage all the SPVs for all the out years? And the, the key learning there, and we already knew this, but the key learning there for other folks in the industry is that SPVs and managing these SPVs, and especially the smaller ones, it looks easy at the outset. It looks easy to set up. It's like, oh, how hard is it to accept LP capital? How hard is it to close this SPV and invest in the company? That's great. But what they're missing is that a lot of the surprises actually happen in the out years, right? It's one of those like tail issues. And it's not that the SPVs and the tail issues of the SPVs is like, you know, only a small percentage. It's more about what could, what could happen that could be really costly for the company. And so it can actually wipe out the margins of a larger group of SPVs. And so generally, I think most people get surprised by the margin profile of SPVs and especially small SPVs. And I see this with GPs sometimes. It doesn't happen as much anymore. I think Assure going out of business was a pretty big wake-up call for the industry. But sometimes I'll see GPs ask about, hey, like, why is it so expensive? Why can't this be even lower and lower and lower? And my response typically is Hey, these are complex financial instruments that need to be managed for 10 years, and it's not the place you actually want to be optimizing on costs at all, because it's one of those things where when it's just working in the background, you have someone, you know, someone credible that can run it. You never have to worry about it. But as soon as you're dealing with a provider who's using cost and price as a way to get you in, you should stop and ask them and think about why they're doing that. Anyways, I'll pause there. It looks like you have another question.

I mean, I have so many. What products have you done that with the benefit of hindsight you shouldn't have done?

We got into incorporation for startups and that's one. We ran that for a while and in hindsight, and we fixed it. We actually just partnered with Stripe Atlas and that's been great. In hindsight, I think we would've approached it by asking the question, is this something unique that AngelList can bring to the world, right? Is there something unique about this problem and unique about our view of how to solve it that we can bring to the world and bring to the table? And if not, then it doesn't make sense for us to be doing it. Why do another product where we can't contribute something new and novel that people are going to find really useful? And I wouldn't have, in hindsight, I wouldn't have tackled that if we'd asked that question. Now something like RUVs, which have obviously been a huge success, was something where we had a very unique view of the world that yes, RUVs should exist. AngelList is very uniquely suited to do it. We're very good at the overlap of legal innovation, product experience, founder tools. And so we did it and it's been great.

Why not Europe? Europe seems to be a kind of shadow region for AngelList, and there's so much demand for it in Europe. What's AngelList's thoughts around Europe?

So when I came in, AngelList was in Europe, right? We actually had a few funds that were there. And after I sat with the Europe business for a few quarters, the observation I had was we hadn't won US yet and we weren't at scale in the US, but we were in Europe and the regulatory structures in Europe that we needed to solve were not as standardized as they would be in the US. And so it was the combination of, look, we need to— let's win US first. US is also just the largest market for venture. And then let's make sure we have a clear view of how we can standardize the structure in Europe and then we can go there. And so I actually made the decision to scale back and shut down Europe because it was just splitting our resources. And the one thing I deeply believe is you should always, always look at how do you, how do you sunset things like you. I think, I think it makes sense for a company to explore new products and new expansion. But if it's not working at the rate you expect it to, let's sunset. We've got to focus back on the core. And so that move was more about us focusing back on the core around winning US, scaling US, because the ambition of the team is very large and we didn't want to get distracted by these, you know, by trying to solve for the regulatory structure there when we hadn't won the US yet. I think now we're actually in a very different position.

What does winning the US mean?

Winning the US for us is what percentage of venture funds are we supporting and what percentage of venture-backed startups are we supporting on our infrastructure? And so we look at it simply as percentage of market share, and we want to be north of 50% across all of the different segments as we scale. And it's as simple as that.

What are we today in terms of funds and companies?

It's so companies we, we just started last year with our cap table product and it's growing quite fast. I can't share market share data yet, but it is growing incredibly fast and we're very, very happy with that and we're continuing to invest there. On the fund side, any time we enter a particular fund like Scythe, we go after it. We'll typically get north of 50% market share. Pretty quickly. And so that's how to think about it. It's like 50, 60% market share as we kind of eat into the different funds because again, our product is just fundamentally different than any other back office provider.

You mentioned the cap table product, Avlok Kohli. Again, I kind of swim for the warning sign. It's kind of like a— I mean, well, let's be blunt, it's like a fucking direct competitor to Korsa. How do you think about competition? What's the right way to embrace it? And bluntly, how have you been able very quickly to catch up and level with them in such a short space of time?

So the way we think about competition is really having an eye towards competition, but we're not really focused on the competition. There's actually this great quote. I think it's from YC, but it may be from somewhere else where startups die of suicide, not homicide.. And I believe that for every single company. And candidly, I've, you know, my first company died by suicide. I basically killed it. It had nothing to do with competition. And so as we think about running AngelList and the products we build, we really stay focused on how are we delivering an amazing experience for our customers and what makes sense for us to pursue and grow regardless of the competition, regardless of whatever market share someone may already have. And if we think that we have a unique view on something and we can create a significantly better product experience, we will just go do it. And the thing we have working for us is we are very product focused. We are a team of pretty ambitious tinkerers, product builders, and we move incredibly fast once we're clear on the direction. And so I don't really think about competition in terms of focusing on it. I think about it more as how do we build something amazing for our customers with an eye towards a competition, meaning, you know, you can't just ignore competition, but that's more of a secondary thing. Our main focus is on building an amazing product and just, you know, owning that market.

Are you taking customers from Carta or are these net new companies created? What's that spread?

It's all of the above. We are, we're definitely taking on net new customers. We're taking on customers that are using other providers. And so we are just sucking in companies and customers from everywhere at this point.

You mentioned about being a team of product thinkers. I tweeted this, but I think it's something that Gokul shares, which is an awe around the speed of execution with which AngelList executes. What do you, what do you do to be able to execute on new products so fast? Because it is faster than anyone else. What do you do to enable that speed?

I think the most important thing we do is we've hired a group of very ambitious people. A group of ambitious people are very dissatisfied all the time, right? Like all the time. It's like, hey, why aren't we there yet? Like, why aren't we building something even larger, bigger? So that's a number one ingredient. Just hire a group of incredibly ambitious, dissatisfied people all the time, which is great. From there, we just set very clear and ambitious deadlines, right? Product launch timelines. And the last piece is just keeping a very tight loop between the working team and just making sure that if there are any blockers, anything coming up, just address it and then let's just get the product out. Let's not have meetings about meetings or process about process. None of that shit matters, right? The only purpose for a company, it's just a group of individuals that came, that are coming together to build product for your customers. And any process, anything that gets in the way of that, crush it. If we have too many meetings, cancel the meetings. Like I'll regularly go cancel all my meetings on the calendar because all that really matters is that you're shipping products that your customers love and anything that gets in the way of that and you drag, kill it, crush it, and just focus on speed, focus on getting the iterations with your customers, focus on getting that feedback. So that's how we think about shipping really quickly.

What do you think are the biggest external threats to you achieving winning the US market? Final one.

The biggest external threat, I actually don't think we're in that anymore. I was going to say I never underestimate a group of, you know, a small group of really ambitious individuals. And I would say the biggest external threat would just be Anyone that's looking to compete with AngelList, that's a startup. But I've always been like that. I'm pretty paranoid when it comes to, with small teams, right?

How would you respond to the suggestion that the macro sentiment is your biggest external threat? If you think about AngelList, it is your trajectory and your transaction volume is predicated on the amount of deals done, the amount of funds closed, the amount of SPVs done. When the market shrinks and cadences reduce massively, your business is damaged.

No, it actually isn't. It actually is the strongest it's ever been. Again, it goes back to the platform play that we have and how we have, you know, how we're actually continuing to move upmarket, take larger and larger funds. And so while net new fund creation may have gone down, we're actually taking on funds who have already fundraised and deployed. Right. We're not just, we're not just going live with funds that are net new. We're also going live with funds who are moving to AngelList after they've already been somewhere else. Right. So we're a fact— you can think of AngelList as just continuing to grab more and more market share and is not dependent on net new funds. The way we actually generate revenue is we actually have all these different products that feed on each other. And so we're actually the strongest we've ever been. And AngelList has always run as if the next bear market's around the corner. Literally every year that I've been at AngelList, we've always said, oh, you know what, the next bear market is going to be next year. So we have to make sure we have countercyclical products in place and we diversify the product portfolio. And every year since, since mid-2019, we're like, yep, next bear market's coming, next bear market's coming. And so we've actually always been paranoid about the next big bear market. So we actually built in countercyclical motions in the company as well. But yeah, it's the strongest ever been. We are We are absolutely firing on all cylinders right now. We have a series of new products coming. I'll just tease that here. It's coming in the next couple of months and not just one, it'll be a few.

Do you want to give a teaser? Do you want to give one?

Not yet. It's not quite yet.

There was a moment in your head where you were like—

There was a moment.

I was thinking.

I was thinking. I'm very excited. I'm very excited, but not yet. I was about to and I'm like, ah, no, Bruce is going to kill me.

I love that. You can't blame me for trying. I want to do a quickfire round, Avlok. So I say a short statement, you give me your immediate thoughts. We mentioned the macro there. Will we be in a worse or a better place at the end of 2023?

I think worse, but I think it'll get better in 2024.

What trend do you see that others are not seeing?

I think people are seeing this. I just don't think they're seeing the rate of change, which is the rate of change through which AI will actually completely not decimate, but amplify knowledge work. But I do think there will be a lot of reskilling, a lot of retraining needed, and it's getting deployed extremely fast across many, many industries. And so I would say the biggest trend others aren't seeing is just the magnitude of the change that's coming for white-collar work.

Who are best placed to instill that change? Is it incumbents integrating AI into existing product suites or startups providing new products?

I think startups providing new products. And I think it's because the quality of the team of like the product craft, right? Or the team that's gonna care about the product the most typically comes from the founders and the founding team they bring together. So I think they're gonna be most suited. That said, incumbents do have, you know, a lot of advantages, distribution advantages being one of the biggest ones. So I wouldn't count out any incumbent as we've definitely seen. But I personally lean more towards startups being able to capture a lot of value.

I love Alex Rampel's, you know, will the incumbent acquire innovation before the startup acquires distribution? I think to that the whole time actually. Okay, my friend, you can buy one multi-stage firm and you can short one multi-stage firm. Which one do you buy? Which one do you short?

Sequoia to buy multi-stage firm. No comment on shorting.

Fuck. Fuck. You can buy one seed stage specialist and you can short one seed stage specialist.

Go. Seed stage specialist, Haystack, I would buy. And then short, also no comment on that one. Fuck.

One day I'm going to get someone just be like, fuck it, I don't care. I need someone who's like retired and just doesn't give a shit.

I'm just going to be a curmudgeon and maybe catch me in a couple of years. Maybe I'll be a curmudgeon.

What did you believe in investing that you no longer believe?

That a great team can go find a market and find a great market. I actually think you need a great team and a great market to come together. Otherwise you just have a great team that can burn a lot of cycles on a market that is just utterly broken. And I've seen this time and time again, and that's the one thing I think a lot about now is what market are they going after?. And look, I think there are some founders that can pivot and find it, but that assumes that they'll have enough capital in the bank to go do it.

Man, it's exactly the same for me. Like 100%. If you are going after something really fucking hard, consumer education market, and you're raising 18 months of runway, sure, you may be the world's best team, but you're going to take 12 months to get to that realization place. And then you're going to raise again. Need to with nothing but again, a good team. That's a hard nother race.

Exactly. Especially in this environment now.

Totally with you. What do you think the biggest investment mistake of the venture landscape was when looking back over the last 18 months?

Oh, that's simple. Lack of diligence in the companies that they're investing in. There was a lot of FOMO investing that happened in the, in the, in the heydays.

What would you most like to change about the world of LPs?

I think with LPs there is a lot of focus, and especially larger LPs, a lot of focus on name brand. And I think the key thing I would change is breaking out of that cycle of only name brand and actually looking at other signals. And it reminds me a lot of what we do as a society. And when we look at someone graduated from Harvard or Stanford, right, there's a lot of brand signaling. And I think that has a place.. But when we look at our data, first-time fund managers are fantastic, right? Not all of them, but when you look at some of the returns, they can be great. So if you have a different way of diligence in first-time fund managers, I think it's an awesome way to invest. In fact, I LP into first-time fund managers all the time. I'm like, yep, you're going to be super hungry and you're going to fucking crush it, Seth. Let's do it.

Will Trump win the election?

I don't think so.

Who will?

I hope not Biden either. I hope we get— I hope we just get a different candidate, a more sensible candidate. But the way it's trending right now, it is not looking great.

Who's your favorite angel to work with and why then?

Gokul is actually my favorite angel to work with. And why him? I think he's incredibly sharp and understands all of the life cycles of a company. From the idea stage down to how do you actually scale it and become one of the enduring companies. And Gokul is one of the few that actually has experience in not just startup stage, but also building an enduring company and being part of it.

Final one, my friend. AngelList in 10 years, what is it then?

I think on the current trajectory, we will be the infrastructure for all venture funds, for a lot of the venture-backed startups. And will just be the fabric of venture. That's how we think about it. It's one of those things where all the activity that happens in venture investing, ownership management is just rather than being done in spreadsheets and offline, it's all done in software on AngelList.

Do you think AngelList will be a public company? I don't know.

We don't actually think a lot about going public. We, we just stay focused on how do we build an enduring company with large cash flows that compounds. That's how I think about it from a pure quantitative lens. That's really all we focus on is how do we just build an enduring large company that we would be proud of.

Avlok Kohli, I've so appreciated your patience with me just peppering you. It's been so much fun. So thank you so much for joining me.

Yeah, no, this has been great. Thank you.