Episode #27: Shopify's "Leaked" Memo, Tourist Founders, Senior Partners Leaving Established Firms

We have an AI fever, and at some point the fever will break and people will wake up and say, wait a minute, there are other things interesting other than just AI. I just hope none of these people who cynically lean into this theme find themselves having raised money to build a business they're not interested in building.

It's the week of April 7th. 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 talking through the articles and Goodread that caught our team's attention over the past week. Topic number one earlier this week, Shopify CEO Tobias Lutke shared an internal memo publicly via X, preempting what he assumed would be a leak. In the note, Toby laid out a clear vision for how Shopify must evolve in the age of AI, emphasizing that reflexive AI usage is now a baseline expectation across the entire company. He described Shopify as being in a red queen race, as a nod to Alice in Wonderland where one must run just to stay in place. So to maintain its edge, the company must not only move fast, but learn and adapt together with AI. From his point of view as a central multiplier, he called out six key mandates in his memo and a few were pretty simple. AI usage is a fundamental expectation priority. Prototypes need to separate AI, but there were a few that it was clear would make the run. There's a leaked memo on X, one of which being AI usage, will now be part of performance and peer review process processes. So how well can you prompt, contextualize and apply these tools? And headcount requests must include justification for why AI can't get the job done. So I felt less surprised by the call to action for using AI across teams and companies, but I did feel like baking that into peer and performance reviews is a pretty bold approach. I think that a majority of Americans have yet to use AI in their normal day to day life and I would actually go out on a limb to say most people who use it are claiming to use it more than they actually do. So it's hard to imagine that those same individuals are trying to bring AI learnings into their work if they barely know how to tinker around with it in their day to day life. But I guess that is the point. So I wanted to have your take on this. Obviously.

Yeah, I think in this day and age any CEO driven or drafted internal comms is always for external Shopify is too big of a company to have any expectation whatsoever that you could write something like that and it wouldn't leak. And the Shopify management team is smart. And I think for me, this is Klarna 2.0. And I think part of being a public, public company CEO is you have one extra constituency you don't have as a private company and that's your public market shareholders. And if I were sitting in the seat at Shopify, my biggest fear would be, well, what if everyone thinks that AI is some existential threat to my e commerce infrastructure business? Putting aside tariffs and everything happening in global macro, what if people don't think we're taking AI seriously? What's one way to make people convinced that we're taking AI seriously is to write an internal memo and then publish it and tell people, this is what I've told my team we need to do. I am taking this seriously. I think what you said, Mia, is really true. Like, I've taken a fair amount of classes and projects on how to get more out of AI. When I was at Google, there used to be some study that was like the average search query was an impossibly short number of words. And I was like, oh. My conclusion is most people don't know how to use search engines to get the answers they want. They type in little bits and fragments and then hunt and peck. And when I look at the prompts that a lot of people I work on projects with, I'm like, that prompt is way too short, it's way too generic. You don't actually know how to talk to an LLM to get it to do what you want it to do. And I think you're right. I think there are people who use ChatGPT or use Claude or use Deepseek or Perplexity. I'm not sure that they're even really scratching the surface. So when I read this memo, I was like, great. What are you going to do to make sure that everybody's had an equal, fair opportunity to learn how AI works? Are you going to help people? And what's the expectation? What does it mean to use it all the time? How am I supposed to evaluate how good you are, Mia, at using AI in your data? Some of these things, I was like, these don't even sound practical as described. There might be more to them behind the scenes. I took this as a message to the industry that Shopify is not going to allow an AI based e commerce infrastructure company to sneak up and steal their lunch and that they're on the job. But I do think when These new technology waves come out. I think you have to give people the opportunity to learn how they work. Like, for example, if you're in finance at Shopify, should you be uploading Shopify internal data to ChatGPT to get results, to generate graphs, to do analytical work? If you're an HR at Shopify, should you be uploading? So I'm sure there's more to this behind the scenes, but I think we've in two short years have gone from a world where I think most companies said we're going to have an AI department or we're going to have some experts who are going to build things that other people are going to use. To now it's like, nope, everybody's got to use it. So I think it's a really clear statement. I'll be curious to see a year from now when somebody says, I wonder what happened with that Shopify memo. Or in six months on Business Insider interviews five Shopify employees about how they use it. I'm very curious to see, but I assume the message for that was startup companies who thought in their pitch, hey, we're going to like out AI Shopify and public market investors who might be concerned that Shopify isn't taking AI sufficiently serious.

Yeah, it's fascinating. I have friends who work at, like, those customer success roles within large public tech companies, and when I talk to them about kind of like the Klarna experience that's been floated around of like, SDRs or any sort of AI that's driving those capabilities, they'll say, like, we have that in the back house too. It's just really bad. So if I spend time using it, I waste it hours of my time. And to be fair, they're like, I'm not paid enough to want to tinker around and contextualize. But it goes back to this circular kind of argument of, I guess that's the point from their perspective of I want to weed you out or show the public that I will weed you out of the company if you aren't. So my last question for this one is, what are your suggestions for those people of how to get started?

I think the weird thing is, in some ways the big tech industry, we're sort of talking out of two sides of our mouth. We're like, people are using AI tools and they're producing all this marketing slop. That's terrible. This is bad. But if you're a marketer who's not using AI, you're falling behind them. But if you just criticize the output as being slop. You wouldn't incentivize a marketer to produce slop. And I think we're like, oh, job applicants are quote unquote cheating by using AI on their interviews, but we expect you to use cursor or replit when you get here. And I'm like, but what? Which is it? Is it like a superpower or is it cheating? And so I think we haven't really sorted out and I think the conclusion I reached is like, I don't want people using AI on me, but I want to able to use it on other people. It's like this weapon. It's, I'm an employer, I don't want using AI to cheat. I want to know if you're actually good at your job. And then once you get here, I want to use as much AI as possible to make you as productive as possible. And as a consumer, I'm like, I don't want poorly drafted emails written by bad AI landing in my inbox, but I also want to be able to use AI to make the emails I send to other people sound better, more succinct. We have to resolve this contradiction. And I think it's a contradiction because we're still sorting out what this technology means and what role it's going to play in the way that we work long term.

Well, I foresee a lot of large, lengthy white papers made from deep research about random things throughout the company. Chickabee surfaced. Our next topic is a brief but really direct substack post by Sriram Krishnan reflecting on the emergence of what he calls tourist founders in the latest AI wave. So the post calls out a real phenomenon that while this AI moment has created a lot of hungry visionary builders, it's possibly also drawn in folks who are more so chasing the hype. These are founders who may be treating fundraising as the goal rather than a milestone in building something valuable. He noted a trend that's something I felt deeply seeing. Really lofty seed targets. So 8 to 15 million for first time teams, only to emerge maybe a couple months later piecing together a two to $3 million round. And while this dynamic isn't new, the pace and excitement around AI really is amplifying it. So I largely agree with everything that was said in his post. I've been trying to put to words a feeling that I've had for a while, which is just because you can build something with AI doesn't necessarily mean the world needs it today. Yeah, what I appreciated about his take is that he moves beyond the philosophical checkpoint and instead focuses on the practical reality that founders probably won't ask themselves that question, especially because they're seeing so much money deployed in this space at the pace that it is. So it becomes our job as VCs to vet, challenge and raise the bar. But my question is, in this market, how hard will it be to hold investors to that standard?

I think we sometimes forget as investors that we're generating signal by the decisions that we make. And it would be a crime for founders to not pay attention to VC behavior. And I think if I were starting a business today and I looked around and be like, gee, these VC people seem very animated about AI. It seems to be the place where all of the money and attention is. So if I want to raise money and I want to get attention, I should probably find a way to drape myself in the AI banner, because that seems to be what VCs based on their action, their writing, the things they're funding, where I'm reading about the big rounds, that's where all the action is. And so why wouldn't I want to be where the action is? Won't that make life easier? And like, well, life is sometimes easier if you go everyone else's, but the table stakes and the competition is so much higher. And I certainly have met people where I'm like, wait a minute, weren't you building a crypto company a year ago when I saw you? Or weren't you building some web3 thing and like, nope, now it's AI. And I think the job of a venture capitalist has always been to figure out who's really motivated, who has a real hunger and passion and insight to build something. In every wave theme cycle I've been a part of has had tourists. We had tourists in 99, we had tourists in mobile, we had tourists in crypto. I think this is like a part of our job is to try to suss out signal from noise and people who are serious versus people who just bought a AI domain. And you know me, I've been incredibly harsh on this thing. I think there's way more opportunism than Sriram even suggests. And Sriram and the Kerne Jackson team are great. I hope he continues to write. I like his like, pithy short posts. But I think this has gotten harder because in other cycles the main thing has been a big part of everything. But not everything, if that makes sense. So like during mobile, mobile was maybe 50% of mind share for VCs who cared, but not 100%. I think there's a lot of firms where AI is 100% of the mind share still. So I think this is exacerbating this opportunism because I think founders have rightly concluded if I don't have an AI story as part of my pitch, there are whole swaths of VCs who will say either I don't get it or you're not interesting. So we've created this turbocharged dynamic where if you don't have an AI story, I think it's really hard to get VC attention.

And I think there will be a lot that will come out in the next two to three years after folks who continue to raise really fast rounds at prices that are a bit high for teams that maybe haven't figured out exactly what they're building, it will be hard to raise that subsequent round and I think for a large majority of the companies just because at that moment we will have hopefully learned a little bit and maybe the bar has raised again. I empathize with the founders and I get it why you would want to if you see why see 80% of their company is in their last round was AI based. But to your point, I've seen a lot of great founders who maybe we're building in spaces that are like non vogue, so health care consumer and they're like, well, in my pitches I just find myself, I have to have some sort of AI angle. And for that I would say AI is truly table stakes is something that we've talked about a lot. But to change your entire pitch to kind of reach a threshold to raise upon, it could be very short sighted. So again, not a new dynamic, but one that I feel like is really exacerbated in this moment.

And I think it's worth remembering that like raising a lot of money at a high valuation just raises expectations. It raises what you, you have to achieve to be successful. That's hard. It's really, really hard. And so I think the people who are celebrating today, these big rounds, the day after the announcement, they got to get back to work and build a company that's worth at least as much as they were valued at when they raised that last round.

Right. Any suggestions? I guess for those founders who are feeling like they have to pivot into a broader AI story or they're feeling like their story isn't taking, how can they kind of stick out in this space and maybe it's like they just have to look a little bit harder for the right investor match. But how do you kind of differentiate yourself to make sure that you're not a Taurus founder.

I do think one advantage of this, maybe over rotation on AI, is that it causes everyone to say is there slash? Should there be an AI angle to my business? And in some cases I think the answer is like, yeah, like founders haven't thought about how to integrate that technology. Also, I think if you decide the answer is no, I would hope that that thought process forces you to get clear on why the answer is no. And I think there's value in clarity. I think there's value in being able to say we made a conscious decision not to go all in and not to center the company on AI. And I feel good about that.

That.

So I think at some point all of these fevers break and we have an AI fever. And at some point the fever will break and people will wake up and say wait a minute, there are other things interesting other than just AI. I just hope none of these people who cynically lean into this theme find themselves having raised money to build a business they're not interested in building.

Yeah. And also have surrounded themselves by investors who truly invested because they believed in them as opposed to wanting to jump in on the hike. Well, our last topic is a piece from CNBC by Ernestine sue spotlighting a growing trend across venture capital that over the past year a significant number of high profile GPs and senior partners have quietly exited some of the most established VC firms. So while some of these moves are framed as retirements or success milestones to build their own firms, other departures are hinting at a broader structural shift within the industry, one of which is as large legacy venture funds increasingly resemble asset managers more than pure play venture firms, many senior partners find themselves wanting to return back to their early stage roots, especially as deploying true early stage capital becomes harder in the context of a fun bloat. On the other side, others are possibly being pushed out for perf reasons as we are facing the other side of the venture market after folks rush to deploy throughout the Zurb era. Charles, I know you wrote a post about why investors could possibly be leaving VC firms a while back, so wanted to ask if you had anything else here to add.

So I, I, I generally think most people who leave venture firms, it's usually about some mix of strategy drift at the place where they work, a desire to have something that better reflect them and then like money. I think sometimes the money piece is overrated. Being a venture capitalist is a pretty lucrative job. Could you always make more money? Yeah, but I think oftentimes usually it's about something that's happening internal to the firm. And I think one of the biggest things that has surprised me, but not surprised me at the same time is the ability of people who are at some of these large platform firms to leave and launch initial funds that are probably an order of magnitude larger than what your typical, you know, if your typical emerging manager is going to raise a 10 to $25 million debut fund, these GPs that leave these more established, highly regarded funds, if you're like mid senior to senior, you're going to raise a debut fund that's, let's call it 100 million ish per gp. That's really different experience. You know, raising a hundred million dollar fund to start that gives you two, two and a half million dollars a year in management fees. Which also means your experience as a first time fund manager is going to be different. You could, you could have two partners at $100 million fund. You could also have some help, you could have a controller, you could have people taking over some of the like day to day work, you could have an associate, you could have a real firm. And that's very different than an emerging manager $10 million fund and can't even usually pay himself or herself. But I think it's very hard to figure out why people left in this business unless you have access to that firm. And I think we're going to continue to see departures in this business because there are some people who've made a lot of money and are going to say this isn't as fun as it used to be. Some people will say I don't see how I'm going to make any money with the bets that we've made. So what's the point? If you think about what happens at most big institutional firms, power gets concentrated at the top and you get this, this upper out dynamic like investment banking or law. And we haven't had that in venture as much. I think we're moving in that direction. As these firms get bigger and they're hiring more people, they, they won't all make partner or capital P partner. We'll say they won't all make Capital P partner. And even the ones who do may or may not have access to the management company or the real guts of the business. And I think we're going to continue to see departures. And I think there are also some people paradoxically who would like to move on on, but they have not yet solved for succession and so they are probably working longer than they had planned. On a firm that they created or managed. And that's one of the cruel ironies of 20 to 20 to 2021. There's not a lot of great performance data that's going to come out of that era. So if you're hoping to turn your firm over to people who made a lot of investing decisions in that window, you might have questions about, well, how much of their performance was the companies they chose and how much of it was like the mania of that era and what do I do with this data? And it might have added three to four more years to your evaluation window for these people before you can determine whether you're ready to turn the firm over to them.

I used to think within venture you could probably make, I don't know, two, three pops to different funds and then you kind of have to decide to stay or maybe venture isn't the place that you should be in. But do you think that's changing? Do you think people are going to be staying at places longer to have a longer evaluation period, or do you think they're going to have more hops in and out eventual?

I think we're going to see a dynamic that looks like more hops. I think people in venture have gotten savvier about career development and I think people are going to get to firms and say, I'm doing well here, but I feel blocked. There's somebody ahead of me, someone in front of me. There's no room in the partnership, but I can move over to this other firm where I see a role for myself and I see a path to growth. I think as long as we are creating new venture firms, that is going to be the pressure release valve for a lot of these people. They're going to say, hey, I worked at such and such firm for a while, I got about as far as I'm going to get. I could either stay here for another six and hope I break through, or I could jump over to this new firm, take a little bit more firm risk. But look, if you join one of these new spin out venture firms, I don't think you're taking that much firm risk. They're going to raise enough money to give it a real go for one and probably two funds. So that gives you five to six years to work hard and show good results before you have to worry about the existential what if this doesn't work out question. And I do think at the most junior levels you will see more people moving in and out of venture. People doing an associate stint, you're Deciding they don't like it or not finding a great way to move up and going back and working and operating, which is how venture used to work back in the late 90s. Like you would hire these smart people, they'd work for you, then they'd go work for a startup company or they work for a public company and then maybe they'd make their way back to venture or maybe they wouldn't.

My last question for this one is the article does call out what's the impact for portfolio companies of which they see these senior partners come in and come out of their board positions. And I think there was this resounding, it depends how much it impacts you. Either yes, they've been very involved and it's painful to see them leave, or that person wasn't an operator at all. So it wasn't that helpful at all. So what are founders to make of all the moves? Movement.

I asked this question of a friend of mine who's a growth stage investor. He's like, when we leave, it doesn't really matter that much. He's like, we're all, as you said, we're all the same at growth. I was like, well, you're not. You're all individual snowflakes. But I think what he meant was most growth investors care about the same things and have the same lens on business. And it tends to be relatively financial, operational and KPI driven. I think it's less about the relationship with the management. What I've seen that tends to be most disruptive is when your Series A lead leaves. As much as I think seed investors are institutional and we are usually when you get a Series A investor on board, it changes the way the company operates and that's usually the first really significant infusion of capital into the business. And those people tend to care as much about the founder and his or her makeup as they do about like the business and the KPIs. And when those people leave a lot of institutional knowledge about the company and the founder walks out the door. And so I think that tends to be far more disruptive than when a late stage investor leaves. And I've got portfolio companies where we're on our third person from a given fund and that third person is like, I'm here, I'm trying to do the best I can. I wasn't here in the boardroom for four years before for trying to figure it out.

Well, we are all out of time for today. Thank you Charles for joining in. Thank you for everyone for stopping by. Please like and subscribe and we will talk to you all next week. Thank you.

Bye.