Are Founder Updates a Signal or a Waste?

It's possible that the stuff that's being built in this bubble will be less enduring than the stuff that was built previous bubbles. I think the good news about bubbles is you get this moment of enthusiasm where people try really crazy hard things and some of those really crazy hard things work.

It's the week of November 17th. Welcome to the Learning Corner, a Precursor Ventures podcast.

Welcome to the Learning Corner by Precursor. I'm Mia Farnam and I'm joined by our GP and Managing partner Charles Hudson, where we will be talk walking through the articles and Goodreads that caught our team's attention over the past week. Our first topic is a LinkedIn post from Ben Zesis, founder and GP of Super Angel Fund, who recently shared his lived experience that quote, consistent written updates from founders are the single biggest leading indicator of future success. He wrote the post in hopes that people would share their own opinions as well. I know you had a different perspective on this one in that some of your most successful founders in the portfolio stopped portfolio updates altogether. What's been your experience at a high level?

I feel like this is one of those posts that gets written once a quarter. Usually I just let it go by, don't say anything. This time I had something to say. I used to believe that this is true and my theory is that this is something that VCs would love to be true that like, oh, the discipline of getting these things out. And what I've come to realize is a couple things. One, we've had some of our best companies tell me they stopped sending updates because they got leaked. Founders could never figure out who was doing the leaking. And so they said as a result, we're going to punish everybody so no one gets any updates. The irony is those companies will absolutely give you an update if you call them. Yeah, get on the phone with them, go meet them in person, but nothing in writing. Second, I think there's this temptation to conflate discipline, which I think getting a founder update out on the 1st of every month, every month, like clockwork, is discipline, like making your bed. That's different than good execution. And so I also would say I have this unwritten unpublished substack, which is I feel like the quality of investor updates I get receive has gone down over time, but the frequency with which I get them has gone up. And I think it's because more people have internalized the discipline piece, which is you should set these but not the content piece. Like hey, you should have burn rate and metrics and like the things that are keeping you up at night and perspective on the business and setting an update that doesn't have those things isn't that valuable. So I've seen a lot of our portfolio companies stop setting them, but I'm kind of with. It's really more like people who used to send them when they stopped. That's usually not good news. I generally found that to be true.

For both companies that are successful and not successful when they stop.

It's funny, we've had a few companies that have stopped sending updates for us. Like, hey, we're in the middle of a pivot. We're working on something new. We will report back when there's something to say. And I'm like, yeah, I don't want to read an update that says we're mid idea. Nothing, nothing to see here. But when companies have been kind of consistently reporting and you don't hear from them and you're like, it doesn't feel like the product's doing that well. I'm not seeing them online. I'm not getting any sense that there's momentum. It's usually not good news.

I feel like if you're a first time founder, creating a good update for investors is something that you like go through an entire experience around. From your perspective, what things do you feel like absolutely have to be in there and then how often do you send them? Because it's a widely disputed thing. Are these useful or are these not useful? Is this a good use of your time? Is it not?

There's one other reason that founders I've talked to have stopped writing them is that some of them said, I get nothing back from my investors. I send them. I don't even get an acknowledgement that they read it. I'm yelling into a void. I'd probably stop sending them too if no one was even acknowledging. So that's part of it, I think, you know, we have our own template for people who want one. I think at the end of the day, as an investor, I want to know, how much Runway do you have? How much cash are you burning? Because everything else in the update I tend to view through the lens of like, is this a company that's default okay or a company that's like in trouble? And if the company's in trouble, does the founder also think that the company's in trouble? We've had a few updates I've gotten where people have been like, well, everything's going great as a company. We only have two months of Runway, then by definition everything's not going great. Two Months of Runway is actually a big deal and so I tend to look at them through that lens. But usually I want to know what's top of mind for you as the founder. How much money do you have? How much cash are you burning? What's the trend line in those things? Any key additions or departures from the team and then generally, like the founder sentiment. I got one from one of our portfolio company founders who pivoted into a product that's like, personally meaningful for him and we got on Zoom last week and I was like, I can feel the joy in your updates. He's like, what do you mean? I'm like, I can tell how much more fun you're having with this new product, how much more engaged you are with it, just by like the way you write the updates.

One more widely disputed occurrence that happens in venture what are your thoughts on having a separate line of updates for investors and then separate updates for non investors? Supporters of the journey. I think founders like to include people who didn't join the current round, but hopefully they think that if they see enough updates, they will join the next. Where do you fall in that?

I've sort of stopped sharing this take with people, but I'll share it here. I think in general, investors have a hard time valuing information that they get for free. I think in general, I get a piece of information for free. I'm used to having to work to get information from companies. I'm not already an investor. And so I told someone this a few years ago. I can't think of very many, if any, companies I've invested in because they've kept me on their update list. I can think of plenty of companies I've helped.

Yeah.

Where I've read and been like, oh, you need an introduction to that person. And so I think if your goal is to build your support system and like the ecosystem of people who care about your company, it's great. If you think it's a way to tee up investors, I'm more skeptical. I've had some investors been like, oh, no, I read these. I've invested in companies. We're looking for lines, not dots. I think most investors, you get one chance once you've met them, it's very hard to regain that same level of enthusiasm. Unless the update is we've made a dramatic. Unless you're like replit. Made a dramatic pivot into this new business. That's working like crazy. Yeah, but you wouldn't need an update.

And there's like a balance of how much you want people seeing how the sausage is being made.

I think that's really what works against you, is, like, people see all of the ups and downs, and then when you go see them, they're like, oh, not a neat package story.

Well, our next piece is from the Spyglass blog, written by M.G. siegler, titled hey, There's a Bubble, exploring how bubbles can be simultaneously good and bad. He references the big short and draws parallels to today's ballooning AI funding, arguing, we're clearly back in bubble territory. Unlike previous bubbles, he's written about Internet mobile housing, Siegler believes this one is so obviously a bubble that companies are both acknowledging the reality and leveraging it as an opportunity. By leveraging the opportunity, he means large tech companies are using this bubble to accelerate core technological growth. This is precisely what perplexes and frustrates people. The world's seemingly smartest individuals are opting into the bubble either because they believe it's real or because they're simply feeding the fire. Ultimately, Siegler argues that this both can be a bubble, one which will undoubtedly have negative side effects, as they always do. And this bubble can still largely end up being a positive thing on a number of fronts. There were a lot of parallels and comparisons made in the piece. Any specific threads that you thought were especially noteworthy?

I do think this idea that, like, pretty much everybody in tech at the big tech companies and OpenAI has been like, this is the bubble. And every other bubble I've been, everyone's like, it's not a bubble. It's like, the future's bright. Don't say that here. Everyone's kind of like, it's a bit of a bubble. A lot of people have been like, well, you know, we put all this fiber in the ground and that fiber eventually became useful. I'm like, but I'm not sure data centers will be able to. The same semiconductor chips that have a shorter shelf life will be the same. It's possible that the stuff that's being built in this bubble will be less enduring than the stuff that was built previous bubbles. I think the good news about bubbles is you get this moment of enthusiasm where people try really crazy hard things, and some of those really crazy hard things work. And that, to me, is the value of bubbles. I don't know. I find it very interesting that even this week, Michael Burry took off all of his shorts on Nvidia, and then we've had four or five straight days of, like, public companies getting whacked. And, you know, if I were in the management at Google, I'd probably be saying the same thing. This is a bubble, Alphabet slash. Google will be here on the other side of the bubble. So. And we're benefiting Gemini. We should go look over there, check on those startups. Those are the ones you should really be worried about. Yeah, and if I were a startup company, I'd say, yes, it's a bubble, but this bubble is going to up at the landscape. But I think it is very weird to be in a situation where everybody agrees that this is a bubble, but everybody wants to continue to participate. You know, we have our annual meeting tomorrow. This is a big theme. I've. I've really struggled with what MG wrote in that article, which is what do you do when you're in a bubble? And everyone agrees that it's a bubble and we all know how these things end.

And I think we always talk about this in the circle of being in venture and being maybe a founder of a startup, but you kind of have to pull yourself out and look at the broader landscape of people who just have everyday jobs. And I think MG does a really good job outlining why the good version of the bubble feels so uncomfortable. Every day people are facing massive tech layoffs while those same companies receive enormous amounts of funding in some simultaneous fashion. We're hearing about this future of abundance while people are worrying about how to make ends meet. So do you feel like that captures the struggle for folks who just don't sit in this space day to day on why it doesn't feel as bright and shiny and as positive of a bubble?

When I told somebody about a month ago, it's like some of this is zero sum. If you want to build data centers and buy GPUs, the money has to come from somewhere. And for most tech companies, people are the biggest line item expense that you have. So I think what you're seeing is a lot of companies are trading human labor for data center and GPU capacity, which feels very dystopian or like in some way. Yeah, but I don't know how else you make the math work. There's just not enough money to do both.

MG closes his reflections why it's difficult to short the AI market because, quote, it's seemingly less financial engineering and more figuring out the correct financing for actual engineering. How much do you agree with that statement?

I think the only real ways to short it are to try to shorten video. That's a scary trade.

Yeah.

There's really no good way to short startups by design. And a lot of the money that's going to data center and infrastructure is private credit. There's not really a great way to bet against that. So I think this is the challenge for all investors. Your options are sit it out and do nothing. And if you're right, maybe eventually you're proven right, but you maybe miss out on the upside. Or play the game and think, hey, I'm smart enough to maybe get out before the bubble really busts, which market timing is really hard. But I don't think there's a way to say I want to take the other side of the trade the way you could with mortgage securities in 08.

Well, our last topic is a piece by Kyle Harrison titled Build what's fundable, reflecting on YC's legacy and how the call for founders has shifted over time. He recalled his early days as a founder back in 2014 when YC's request for startups was an inspiring list of big ideas in open spaces like energy, robotics, government, and the creator of 1,000,000 jobs. Harrison reflected that today the YC request list has moved from problem first questions to consensus driven ideas that are venture backable. He pointed to a specific request that felt especially different from the early YC days. Quote the first 10 person $100 billion startup was a request. Ultimately, Harrison closes with this comment. The most important takeaway here is that I don't believe this is YC's fault. He argues instead that they're adhering to logical economic incentives shaped by a much bigger force, the consensus capital machine or the growing size of venture capital as an asset class. He also suggests that the way to solve the normative culture built around consensus formation is to inspire participants to believe in something. This was a very thick piece, so anything specific that you wanted to highlight.

That stood out hyped so much as when you are going back and forth on this point. I've been going to YC Demo day since just about the beginning and I think if you're new to venture, it's hard to imagine a world in which the founding premise of YC was controversial, which was that these more technically oriented founders could become leaders and CEOs of companies. Like at the time that was like not a widely held belief. That was, that was not normal. And I think it says a lot that that's now a broadly consensus belief. Not like broadly consensus belief. It is the consensus belief in venture that those are the people who should start and lead companies. And I think that's partially why YC has been so successful in some Ways the analogy I use, it's like anybody who starts a venture fund with some vertical thesis, maybe you're a forerunner and you had a thesis on consumer, maybe you're bold start and you had a thesis on developer first stuff. Maybe even you picked your favorite term. At some point there's a window of time where you have an edge because there's something you believe that other people don't believe and that that thing is true. And then it becomes consensus and everyone's like, well, of course, like technical founders are capable of running and scaling big companies, C Stripe. And once it becomes consensus, if you want to continue to lead, you have to evolve. And so I think YC lives in this ecosystem where it's important to remember what the feedback loop looks like. In the beginning, YC was finding founders that they thought were good VCs agreed. And then becoming being a YC founder became a consensus because it gave you access to the YC network, it gave you access to, to the YC merit badge. It puts you around smart people. And I think it's hard for me to criticize YC for building an experience that more people want.

Yep.

And so if you look at those charts, it's like there are more second time founders in yc, which wasn't the case before, partially because there are more YC alums. Partially there are more people who say we have founders in our portfolio who are second time founders, but first time YC founders. And I asked one of them, I said, why are you doing yc? He goes, I just want that energy. What do you mean? He goes, I want that energy of being in the batch with those people who are all pushing hard. I think it's going to make me a better founder, even though I already have gone on this journey. And then the other question is like, what's the tail and what's the dog? I think what happened is YC became this really important channel for discovering new founders. So VCs like became over indexed on YC. Yeah, and they still are. So is it YC's fault that they have curated a group of people, that VCs are rabid? Or you could say, well, VCs are irrationally enthusiastic about YC. That's a VC problem. That's actually not YC's fault. And so I feel like there was maybe some people who commented on this article who didn't read the whole thing, which is shocking on the Internet. I know. But I also would just say the hard thing for YC is yes, you can have requests for startups, but you also have to deal with the people who apply. And if I think about, you know, there was a period of time where YC did, I think amazing for international factors, especially during the pandemic in allowing those people to be a part of YC and opening up investor aperture to think about founders in other countries. I think about YC Bio and some of the work they've done. So yes, there is probably an overrepresentation of agentic AI companies in the last two YC batches. There is also an overrepresentation of agentic AI companies in the entire startup ecosystem. And while YC can attempt to shape who applies, the people who apply apply. And if there's one thing I took away from the article, I think when YC said it's best, it is actually pulling in people that are working on ideas on the frontier, things that are not well understood. Portable nuclear reactor or aviation or things that people broadly don't believe are technically possible or aren't paying attention to. I think right now it's hard for me to criticize YC without criticizing the entire VC industry for being too over rotated.

I and I mean we've all attended the demo days, it's full so they've built something that the works that by works means that there's an audience VCs who continue to show up every single cohort and support and write checks into.

Yeah, YC has hit the flywheel in the virtuous sense that they continue to attract great founders because great founders think that great founders go to YC, which means they get more great founders. So VCs come back and continue to pay exorbitantly high prices for privilege of investing in YC companies. And I don't know how you would deconsensus YC unless you just said we don't believe in all this AI stuff. We're only going to take people that are doing synthetic bio or rockets or nuclear energy. I think the beauty of YC is it is a good barometer for what people think is interesting and hot and right now AI is as noisy at YC as it is in the ecosystem.

Harrison shared several graphics and stats showing the archetype of a YC founder now and I think you alluded to a little bit of it of just repeat founders, but it has kind of converged into something of a consensus. An attendee of a top college previously involved in a YC startup, increasingly younger and I think most people focus on the positives of this.

Yep.

But what do the negatives maybe look.

Like, I think in, you know, if I were running YC and I'm not, I would wonder like, is there a risk that we become too insular and that what we're really doing is taking people who are already in the YC ecosystem, either previous YC founders, people who worked in our companies and recycling those people. And are we missing out on communities of people who would benefit from being a part of YC because they're going to have a transformational learning experience? Right now? It doesn't seem to be a huge problem. And look, they also have responded to some criticism. Some of the batches were getting a little bit too large and unmanageable. Batch sizes have come down. But also now it's year round. And so I don't know yc the thing one, one of the main things I admire about them is they never sit still. They're in some ways I find their own worst critic at times. And I think every time feels like the brand has gotten diluted or maybe it's not as good.

They well, we are all out of time today. Thank you, Charles, for meeting me in person the week of our agm. Thank you to our listeners for popping in as well. Please like and subscribe and we will talk to you all next week. Thank you.

Bye.