Is Series A Broken?

I think everything feels broken. I feel like pre-seed and Series A labels feel broken. Series A feels broken. I think it used to be that the goal of a Series A investor was to help take this very large mass of seed and pre-seed stage companies and anoint the ones that had product market fit and give them more capital and help them grow. And now it feels like we live in this weird world where there's only 5 to 10 companies that feels like matter every year.

It's the week of August 10th. Welcome to The Learning Corner, a Precursor Ventures podcast. Welcome to The Learning Corner by Precursor. I'm Mia Farnham, and I'm joined by our GP and managing partner, Charles Hudson, where we will be talking through the articles and good reads that caught our team's attention over the past week. Our first good read of the week comes from a post on X by Gil Dibner, and it's a sharp and direct take on what he believes is a fundamentally broken Series A market. The core argument is that Series A Series A investors who have historically served as the first real scaling capital after a company achieves initial product market fit have largely opted out of doing that work in today's market. Gil outlines 3 behavioral patterns that have replaced it: investing way after product market fit is already abundantly clear, investing way before product market fit at valuations that do not price risk, or accumulating early-stage options at inflated prices simply to hold positions. In all 3 cases, the essential function of a Series A investor determining when initial product market fit has been achieved and actively helping a team make the leap from inception to growth has quietly evaporated. For pre-Series A investors like us, this leaves a lot of open-ended questions as to how we support our portfolio into the following rounds. He uses some pretty pointed language to describe this State of the Series A market, calling it untethered from reality and saying investors are effectively opting out of their core function. Charles, how do you see this playing out in real time as companies in our own portfolio look to raise their Series A and beyond?

As I was joking with you, I think everything feels broken. I feel pre-seed and Series A labels feel broken. Series A feels broken. I think it used to be that. The goal of a Series A investor was to help take this very large mass of seed and pre-seed stage companies and anoint the ones that had product market fit and give them more capital and help them grow. And now it feels like we live in this weird world where there's only 5 to 10 companies that feels matter every year. And those companies attract so much capital. It's like, what are you supposed to do if you're not one of those companies? And so I've had founders come to me and say, hey, I want to raise a Series A round. $20 million Series A round. What do you think, Igo? I think anything's possible right now. I really do think anything's possible. It's gotten, I think, harder to predict who will be successful. Ironically, it's become easier to predict who will not be successful. And that tends to be the companies that have mediocre traction or in markets that are not consensus hot in venture. And it just really feels like in a world where if the business is really, there's only 10 names that matter from the point of view of LPs. And And the whole business is finding those 10 companies, things graduation rate and like filtering for PMF early, they don't matter as much because instead of trying to figure out separating like the good from the best, you're trying to find these like very small handful of like far outlier companies. And so I think it breaks, it breaks a lot of the rules and guidance. Like, you know, I had a company in our portfolio who hasn't fundraised in 4 years, but has made good progress, come to me and said, hey, I want to go raise my Series A. Here's Where I think will be, what do you think? I go, there's no way you can raise with those numbers. Those are 2023, maybe 2024 numbers today. Those won't work. And he said, what do I need to hit to make Oracle? I don't know, but much more than what you just articulated to me.

And Charles, in those conversations, is that the point where we talk to founders and talk about alternative routes of funding? How can you actually reroute if you've been dealing with benchmarks that are somewhat outdated in the past year or so, just based on Investors alone?

I've told most of our portfolio companies, if you don't think you're building a $5 billion company and it's not clear to investors you're building a $5 billion company, the Series A market is probably going to be closed to you. And I know that feels harsh, but pretty much reflects my reality. If you don't have what most people think is already an elite team assembled, it's gonna be closed to you. So the answer for, for most people, Is the Series A market is really not viable. And it's funny, I told a bunch of our LPs, I don't know, 3 or 4 years ago that, hey, Series A graduation rates are going to come down to 20 to 25%. And they were all like, wow, that's not possible. I was like, no, it's just math. And even that was probably optimistic. It actually might be 10 to 15 steady state. And if you back out the AI stuff, it might be 5%. So I think in that world, I talk to a lot of companies and say, you have 2 choices. You can try to read a very fickle VC market, which is kind of reading the tea leaves, or you can take your destiny into your own hands and you can focus on either profitable growth or finding capital providers who don't need companies to go from $0 to $100 million in ARR in 18 months. And those people are out there. They're just not the people VCs have traditionally introduced their companies to for follow-on financing. So it is really, it feels like a whole new world when it comes to advising companies on raising money.

Yeah, there were comments in the post asking if this signal, so this gap of a need for Series A investors in their more traditional jobs, is a strong opportunity for somebody to build a strategy around Series A right now to just fill in the gap. I have specific thoughts on that because I, I think it's tough. I'm watching my Series A friends really struggle to win deals because people have really shifted around their strategy and you only do so many deals per year as a Series A fund. If you don't hit the ones that you want, it's really difficult to get yourself over the line to do something that you're half excited about or that, you know, kind of fits your thesis. So I didn't know if you had any specific thoughts on that. If this does mean, oh, somebody could really fill in the gap for Series A, I think selfishly for me as a pre-Series A investor, I'd be like, yeah, we'd love to have you join. But if I'm a Series A investor, I don't know if it's a really difficult strategy to just stand up and own.

I think the problem we have in our business Right now, and it's not a problem for everybody, but it's a problem for a lot of firms is we've had a couple of $500 million exits, even in our portfolio. And people are like, oh, that's very nice. Whereas 5 years ago, people would have been like, great job. Now they're like, oh, that's kind of nice. And I think the perceived scale of winners in venture is so great now. Even with all the air that's come out of SpaceX post-IPO, it's still an insanely valuable company. And if you're like, well, if the bar for success isn't a $2 to $5 billion IPO, if it's really a half a trillion to a trillion dollar company, suddenly things sub a billion don't really feel like winning, even though they're winning for the founder. That's going to change their life. Winning for us, for a sub $100 million fund, when you go in and talk to limited partners about, hey, our strategy is to find a bunch of $2 to $3 billion outcomes, some of them are just going to say, but the real game is trillions. So why aren't you playing the real game? Is it 'cause you're not good enough? It's 'cause you don't have access to those deals. And I think it's really hard to construct a business where there's just a really small number of companies that matter. That would suggest, if, if that persists, that would suggest we actually just need far fewer venture capital firms. We just need fewer of 'em. We need 10 people who are going to kingmake the really small set of companies that matter, and that will become the business. And I think the economy and innovation will be far worse for it.

Well, it's a really good tie into our next read. It's a LinkedIn post from Konstantin Buehler over at Sequoia, who along with a summer intern spent time studying 20 years of hype data sourced from Hacker News. The analysis ranks the most hyped topics on Hacker News for every year since 2007 and places the most valuable company founded in that same year directly underneath it. The observations were very clear. Top companies are almost never born from the hype of their founding year. Airbnb launched in 2008 when the top, top topic was Google, and Anthropic came in 2021 when everyone was consumed crypto, new trends also appear to announce themselves 5 to 6 years before they peak. LLMs cracked the top 15 in 2016 and didn't hit number 1 until 2022, and AI coding entered in 2021 and now tops the list in 2026. The takeaway here is not to ignore hype altogether, but to treat sustained long-term attention as the more durable signal since Internet subcommunities tend to be the earliest indication of where things are actually headed. This isn't the first time a piece was published to shed light on this phenomenon. It has thousands of impressions and engagement, but in the end, I sense people are really just wanting to stay on the hype train because it is easier. Why, Charles, is this such a hard lesson to learn for the venture ecosystem?

I think it's because as a venture capitalist, you talk to a lot of different audiences. You talk to a founder audience, you talk to an investor audience, like an LP audience, and you talk to your fellow co-investors. And I think it's hard when, if everyone else is like, we're all in on X theme, what are you seeing? And you're like, I'm working on something totally different. And people will, you don't have anything to talk to your co-investors about. Limited partners will go, well, gee, everything I read, like right now, whatever is coming after AI, which by the way, I don't think is robotics. Whatever it is, started happening a couple years ago and a handful of people probably know it and the rest of us don't yet. But it's really hard to go to LPs and like, hey, I'm spending a bunch of my time in a category that no one else is talking about, that no one else thinks is valuable. And I just think it's so much easier to say I'm working on the thing that everybody else is working on. To go to a cocktail party today and talk about your inference or harness or model companies is a lot easier than to go talk about some consumer company that you're Investing in that nobody cares about. And so I think all of the incentives in our business increasingly push you to focus on whatever the hot thing is, because that's where all the conversations and attention are. And it takes a lot of discipline and patience to stay working on the things that are not yet hot.

I think it also takes a little bit of humility if you're an investor to know, like, where are you finding these trends along their lifeline? You have to have a little bit of humility to ask yourself, am I finding this after the arc and I'm not really gathering the value that this industry is going to accrue? Or did I actually come early on? And I think you've said it, you said it to me like a year ago. I think a good test of this is when you talk to your co-investors and you swap deals, you should have a couple in there that your other friend sitting across the table is like, I am not looking at that industry at all. That sounds like a horrible place to place time. And again, there's a range of what makes that acceptable. But I think if all of your deals align every single time with the investors that you're looking at, or everyone is looking at the same things, you should know it's a little crowded and, and maybe it's not actually the time to find the winner here. But it's an easier said thing than done. And again, to your comment about LPs, I actually was going to ask you, 10 years ago when you were starting Precursor, I assumed that this saying that you're looking at areas that are overlooked, that nobody else thinks is interesting, is the pitch to be in venture, to be a fund manager. Why do you feel like that's collapsed?

I think what's happened now is all the companies we hear about now are actually fairly consensus. They're consensus now, and all of the big firms are in them. So it feels like the business in quotes of venture now is find the really big consensus businesses that the multi-stage funds will pile into and make sure you get to pile in either before them or alongside them. And that's all that matters. You know, when I was at Uncorked, we did We made our investment in DroneDeploy, I think in 2013, and Procore just bought it for $850 million. That was like not a well-understood company when we met those guys. And it took a while, but I was like, I think it was worth it in the end to get a payoff of that scale. And so I don't know, part of the reason everything feels so broken is everybody's responding to the same incentives, which is it used to be like, oh, the job of a pre-seed investor. is to find these really great companies early at low prices so that you can make money. But if the price ceiling is infinite, you, you can make a lot of money by being later. So maybe it's not as important to get in at the ground floor. You can get in to, to Gil's point, you can get in much later and still get early-stage venture-scale returns. We are in a very strange new world in venture.

I was having a conversation with another investor friend of mine and being in unicorns or well-valued companies that nobody's ever heard of.

Yeah.

And like, how do you communicate that to LPs and like still show that there's like value to be accrued there? Again, I think the conversation has now turned to how can you be a $20 to $30 billion outcome and beyond if you were talking about SpaceX. But there's like so much value that can still be extracted on the lower end. How do you communicate interest or, or gather interest around companies that are doing very well, have all the metrics behind it, but no one's ever heard of it? Probably because it's not in the hypey industry of Of today, but like they still have the valuations that like someone would deem to be important.

I think right now, if I said, what's more valuable to you as a fund manager, a company that is performing well that no one's heard of, or a company that is well known where no one has any idea if it will work, I would argue right now you get much more credit for being in a frontier research lab where nobody knows what the product is, but that the founders are noteworthy. And you know, some of these companies are unicorns from day one because they start life at a billion-dollar valuation. And you'd be like, oh, I'm this unicorn. I'm like, well, yeah, you invested at a billion dollars. Like it wasn't like you wrote it up. You invested a billion.

Born as a unicorn.

It was born unicorn, a bornicorn or whatever you wanna call it. And I think we have companies in our portfolio that are doing great, but they're either off theme, off trend, or the other investors in that cap table are not noteworthy. And I meet with LPs and they're like, oh, that's interesting. And then I'll tell 'em, oh, this other company we have, I have many questions about it, but it has these fancy investors as co-investors and it has these fancy founders with these great backgrounds. So much more energy and attention paid to that latter bucket. Because I mean, I am sympathetic. I think a lot of LPs are like, well, what are some shortcuts I can use for companies I don't understand? If it's a really great company, shouldn't Sequoia or Andreessen or Lightspeed, or shouldn't one of those big multi-stage funds be in? I had an LP tell me that. I'm like, that's like not a bad heuristic. It's not perfect. But I understand you're looking for shortcuts to better understand companies that you don't have time to actually go deep and get to know.

There's just complete industries that are off the table for some of the larger funds.

Oh yeah.

Even if you're part of Thorn, even if you're part of Grunz, those outcomes are not important to you.

It's huge.

But I would still say like if you were an LP and you had fund exposure into any of those, you'd be excited about those. My last question to you is how long, how much longer do you feel like we're gonna be living in what I would call like the hype? Of this market? Do you feel you have like a handful more years? Do you feel after a few more consequential outcomes before the end of the year in the public markets, we'll start seeing a trough out? What do you think?

I don't know. I thought we'd already be done and we're not. And in some ways we're in this extended cycle where we never really took, in my opinion, a meaningful pause after 2021. People wrote a few blog posts, but just as we were beginning to say we should do this whole SaaS thing in a more sober, responsible way, AI happened, and I don't know how long the AI cycle is going to last, but it feels robotics is already lining up to be the next thing to invest in on the backside of whenever people get bored with LLMs, inference, harness, OpenAI, all that stuff. As one of my friends said, it just, it might be 1999 forever. And that is a brain-breaking way to think about venture because it means a lot of the things don't work as well in a world where the businesses Make sure you're on the front edge of whatever hype train is going. Hopefully you get out and get some liquidity before it's over, just in time to memory hole that. Like, you know, the crypto to AI, the robotics pipeline is quite robust.

Yeah.

And so I fully expect that venture with the scale of dollars that are in it now, it needs thematic pools where we can dump lots of money into. And so if robotics isn't it, something else, space defense, something else will rise to take its place.

Well, our last piece is a blog post from Andrej Haru over at Maple VC titled The Talent Arbitrage, and it introduces a founder evaluation framework built around 3 archetypes: the inventor, the builder, and the operator. The central argument is that the most iconic founding teams from Apple to Stripe to Canva consistently reflect some version of this trio, and that the builder, the one who translates the ideas into motion and attracts complementary talent to their momentum, is almost always the catalyst that enables the other 2 to form. Builders are the hardest archetype to spot because their backgrounds tend to be nonlinear and their credentials rarely match the problem that they're solving on paper, which is precisely why they get overlooked by most investors. Andre argues that the steepness of a builder's learning curve and their ability to attract people before there is an obvious reason to join are stronger predictors of a long-term company creation than any background network or pitch quality. He makes a really strong case that builders are the most underestimated archetype in early-stage investing because their stories are super messy and just don't fit that traditional pattern matching. Charles, does that resonate with your experience meeting founders, especially ones that come across our portfolio? And just for examples for the listeners, some of the builders archetypes they gave and examples of them were Larry Page, Elon Musk, Melanie Perkins, and like Bezos and Zuckerberg were tied as half inventor, half builder?

I think most people think about founders as inventors like that. That's, I think, like the more common archetype, but I think builders are, are great. If I think about our portfolio, we have a lot of really successful people in that bucket who I think really have like the skills required to do that. And to me, those are the most satisfying investments we make are in these high potential people where I think you meet them and you're like, oh, this person's going places. This person has skills, ability, and talent. And often cases, the builders have just never been given the platform to show the world what they can do. So I tend to gravitate towards those and I like these frameworks. They're helpful. I mean, I know way back when there was like the hack— the hacker, the hustler, and the designer that was like the 3-person archetype that you wanted. And I think these are helpful frameworks. In the end, if I think about most of our most successful founders, they're just kind of these like singular unique people with like these really interesting combinations of skills and personality traits. But frameworks are helpful when you meet people trying to figure out how should I think about this person and what they're bringing to the table.

I remember being on a panel actually recently and they spoke very openly about seeing deep experience in the specific industry that the founder is building was the thing that they look for. And then, you know, we had some discourse because I think that's like the builder archetype, which is not that at all. I think we've seen it within our own portfolio. It's people who've just been like, I have an idea, I know how to execute and kind of bring this to life and can live along the range and bring this inventor mindset and convert it to real life and then help the operator kind of like grow and scale it beyond. I feel like we've seen that more times than none. And one thing they talked about was that builders are the ones who attract talent for the future of the company, less so than the inventor. And to your earlier point, I think that's surprising to people because you think of inventors as like the visionary, the people that like want to gravitate towards that person. But I thought about it a little bit more deeply. And I think if you're somebody who's debating leaving their fancy job, of course the inventor can kind of woo you over with their beautiful vision. But that builder is the one to be like, let me sit you down and show you the roadmap of how this all will work to make this real for yourself. I've also seen that happen with strong operators as well. But any thoughts on that as it pertains to attracting talent?

One of the conversations I have with a bunch of our portfolio companies founders is I think inventors are perpetually living in the future. And the danger of living in the future is like you're seeing things that other people can't grasp. And so, um, I was, I oftentimes ask them, who, who else is living in the future like you are? Because if you can find more people who already are either experiencing or believe what you're saying, your life will be a lot easier. And part of what makes you special is you're seeing things that normal people don't see. And because normal people don't see them, they can both appreciate your value as an inventor and be like, that person's also crazy. Whereas I think builders usually have this ability to make things that are still futuristic and future-oriented feel like they could happen soon. They could happen in the context of your career, your lifetime, and that like, it's kind of safe to join. Whereas the inventor usually wants to talk just about like their nirvana end state, which While important, often can feel abstract, far off, or risky to the people who are looking to join the company.

When you're sitting in pitch meetings, do you feel like you enjoy having the balance of all 3 in the meeting, or do you feel like you need to hear one perspective from each, or do you really just wanna spend more time with the builder versus the inventor?

When I think about the startups that I've seen that have suffered when a founder leaves, ironically, it's when the inventor leaves, the person who has this commitment to a long-term future state of the world that doesn't yet exist. Usually when you lose those people, the companies just become more practical, which usually in the short term feels great. You don't spend as much money on R&D, like everything's easier. There's like less tension because you don't have this crazy person pushing you towards this future state. And then 2 or 3 years from now, you're like, oh, we've like lost our vision. We've lost our ability to innovate. We're like super efficient, but we're not creative. And I think those inventors play an amazing role. And continuing to push the boundaries. I think a lot about the criticisms of Apple post-Steve Jobs, and a lot of it I think was like there wasn't this inventor energy pushing the company to like try and invent new things that people could barely conceive of. And I think the inventor is a truly rare archetype.

And needed across the entire range of the company, probably not just zero to one. Well, we are all out of time today. Thank you, Charles, for joining in. Thank you to our subscribers. Subscribers for joining as well. Please share with friends and we will talk with you all next week. Thank you. Bye.

Thanks.