How Many Startups Will Survive OpenAI? | E2288

People don't want to talk about it because it's scary to admit that this is happening.

But a founder that closed a $15 million Series A from a top-tier VC, and then a half year later they plan to return the cash to investors. You add that Clyde will displace the product and erode the value. This is really happening. Most people are not talking about it. It's kind of wild.

It's running a zombie company.

To put your nose to the grindstone at a startup for 10 years, 15 years, and the outcome is unknown, or you get a guaranteed you know, $10, $20, $30 million package from OpenAI.

Do you think that the companies in your portfolio that are facing the similar chasm going from the SaaS era to the AI era or the agentive era are going to make it?

Probably 50% that I think might make it.

It might not be the money printing free cash flow machine that people think it's going to be.

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I'm well, excited for today.

We also have Jenny Fielding from Everywhere Ventures. Jenny, how's life on your end?

It's Good. I'm excited to be back. It's been a while.

It has been a while. If you don't know her firm, Everywhere Ventures does essentially raises capital from a collection of about 500 founders and then sources deals from the same group. Portfolio companies include Star Cloud, Hedway, Devo, and others. Jenny, good to have you here. Now, Sam, Slow Ventures. How are you doing?

I'm great, man.

Glad to have you here. Major portcos include Nextdoor, Robinhood, Human Interest, Airtable, etc., etc., etc. Busy man. And then finally, we have Dave McClure from Practical Venture Capital. Dave, how you doing?

Fantastic.

Good to have you back. You run a secondaries-focused fund that also buys GP and LP commits, which is a big deal because we're going to start today by talking about the most important thing in the world, which is news that Anthropic and OpenAI dropped successive bombs on the SPV market. And if you don't know what that means and you're listening to this, imagine that you can't buy shares in Anthropic or OpenAI because you're not a VC, you're not an employee. So you go to somebody in a back alley behind a dumpster, they open up their coat, they have a couple of shares in there and they say, "Don't worry, I got some Anthropic for you here." Yeah, exactly.

Just cut with a little bit of like, you know, sugar or something.

Yeah.

Fentanyl.

Yeah.

In this case, the fentanyl is the layered fees. And it turns out that the two companies in question that have these great assets don't want you to trade them. They want to have permission. And so a lot of these assets—

What happened to democratization of capital? What happened to the little guy? Stomping all over them here.

But Dave, I'm confused. Like, most companies have ROFers on stock transactions. Like, this is not non-standard in the industry. I'm actually surprised they didn't already have those limits.

Well, I think Anthropic is picking and choosing who they want to be in their deals. I think single-layer authorized SPVs are still fine. Unauthorized SPVs, multi-layer SPVs might start to get into weird territory, but there's going to be a fuckload of lawsuits regardless.

That's what I want to ask about.

Yeah, I mean, having been in the SPV game, uh, for since its inception, and Naval kind of taught me the, the, the industry— I was the first, uh, actual syndicate on AngelList famously because he sent me a link to it. I signed up and he's like, hey, check this out, this is what we're going to do next. And then I tweeted it and he's like, oh, we didn't announce it yet. And I tweeted my, my syndicate. Um, and so if you are doing this and you don't have permission from the founders, It gets very annoying for them because now you're creating multiple ways to get on the cap table and they may not want certain people on the cap table. Maybe I'm an investor in Uber, you know, and Sam is an investor in Lyft and Sam is doing some backdoor thing to get access to me.

But giving my shares a shitty one.

Well, I mean, it's just, I think that was the actual game on the field, right? You were Lyft shareholder.

I wasn't actually an investor in Lyft. No, okay. Fine, fine.

But the truth is. It's annoying to, to founders. Mark Pincus was the first to try to say, hey, I'm going to not allow this and I want it to go in an orderly fashion. Elon has been very strongly managing this every 6 months. So it's kind of long overdue and it's too much of the Wild West out there and people creating synthetic shares in companies. This is—

they can't have it both ways. These companies have been using SPVs to raise capital and create a competitive market for their shares and their employees want liquidity. So like, why are they now saying, oh, it's not okay when in the past they've used it?

I don't— again, I might be out of date because I'm now old, but like, look, when I was at Facebook, used to be called Facebook back in the day.

Yes.

This was like an unbelievably tightly controlled process, right? Like, in fact, the way Yuri made a ton of money was by being the authorized buyer of shares. Like, I don't— so when—

same for Sackler and Twitter.

So and like, by the way, in that era, there was a lot of concerns about the look-throughs being like you have too many people on your cap table and you have to go public. And so I don't— what did I miss in the last decade where some companies were just letting like unhinged SPVs happen? Like there's something I missed because to me this is the way it's always been done. And most companies do have like ROFers on share transactions.

I mean, have you seen the rise in all the brokers though? I mean, I get—

yeah, but those are all scam— like half of those guys are scammers. Like they're not real, right? Or like, I mean, trust me, I've actually dealt with one of them recently. I won't name names on something.

And like, I don't think it's true that all or half of them are scams.

Some.

Well, uh, Sam, Jenny did an actual study of it and it turned out to be 49.7% were scammers. So he rounded up. But I guess Jenny, my question to you then is what did happen here? Did the companies just basically leave the barn door open and maybe they did it because they wanted there to be some liquidity? That seems to me what I saw happening, which was, hey, you know, it's, it's not hurting anybody. Let's let it rip. And then, Jenny, I think what happened eventually was the multi-tiered ones and then the 10% load-in fee since everybody wants to get into Claude, OpenAI, and SpaceX. And that's where maybe the founders were like, hey, that's our money. That's our money. That 10% load-in fee should be going to us. That's coming off our valuation.

Jason, this is like Lady Gaga and StubHub selling tickets and like, it's okay if one layer does it, but now if like 3 different people are doing it and I'm not getting that money, wait, no, that's not cool.

Yeah, go ahead, Jenny.

I mean, in my experience, and I am not talking about some of these big guys, but in the, you know, the larger companies that I've been in, the founders are kind of busy running their business, right? And so they've maybe like, you know, kind of looked the other way. For some of these, they're friends and friends of friends, and that's how it started. I think, you know, maybe in the last decade since Sam was at Facebook, there's been a whole cottage industry that has literally popped up and, you know, is kind of preying on this and it's taken it to a new level. I get inbound from these guys being like, hey, you know, do you want to sell Star Cloud? Do you want to buy Star Cloud? Like an hour later. And I'm like, they're not even doing targeted marketing. And so, you know, I don't know if they're legit or not. I've actually have spoken to some, but I think that it's becoming quite predatory. And I really wanted to talk to Dave Erickson today. So this all worked out on where he thinks the lawsuits are going to be and what's going to happen in the Anthropic and OpenAI case.

One key difference about what changed is that when Facebook went public, it was worth about $100 billion. And today we have several companies worth—

that used to be a lot of money.

That used to be a lot of money.

Now it's an A round.

Now it's— no, now it's like a pre-seed round for a Neo Lab. The point is, I think that as these companies get bigger, the prize is larger. People want in more. And also I think right now, as people are afraid about the impact of AI on the job market and the economy as a whole, in some cases we have some polling data in the docket, people want to own a piece of it. And who wouldn't want to own a piece of the thing that might take their job? So I can see the demand rising. But, but Dave, on the point about the mechanisms here, so Anthropic says any third party claiming to sell Anthropic shares to the public, whether through direct sales, forward contracts, tokenized securities, or other mechanisms, is likely engaged in fraud. Fraud's a big word.

That's their opinion. That's their opinion. I would want to go to a lawyer to— I mean, some of what they're saying, I would say, is probably true, but some of that is probably a little bit of you know, marketing and fear and spreading fear and doubt. And I don't think Anthropic is the reference point for the entire market. Like, it's true that there's a lot of volume going to SpaceX, Anthropic, and OpenAI, or at least was going to OpenAI. But that's not, you know, 100% of the startups in the secondary market out there. And SPVs are a useful vehicle for folks to raise capital, assuming they're done in an organized and authorized way.

Yeah, like a surgical scalpel is a tool and a weapon. Just depends on how you, uh, how you use it and where you stick it.

Single-layer SPVs authorized by the company are probably fine.

Yeah, well, I think authorized by the company is fine. Like, what's the problem, you know?

Well, I'm just saying that statement that they made was pretty broad and sweeping, and I'm pretty sure there are SPVs that Anthropic authorized in the past.

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Or even 5% on a $50 million allocation is, you know, decent chunk of money.

Yeah.

It's, it's great money for this weekend to pay off your bookie and go to Vegas and get more in debt. Like that's the, Those are the characters here that are emailing all of us. And somehow they get the cap table every time. Somebody gives them a cap table and then they start emailing you. It's dysfunctional. But it, what it does speak to at the end of the day is, uh, we have a broken system in America of accreditation where only 6% of the country can participate in this. But, you know, half the country wants to participate or 30% wants to participate. And this is where, uh, I think what Naval is doing with USVC, these, uh, closed-end funds. could take a little of the pressure off. And most importantly, I had the chair of the SEC on the All In interview program a month ago. They're going to create a sophisticated investor test. The SEC has been charged with this. So imagine going to sec.com/sophisticatedinvestor and you take a test like a driver's license test, and then you can put money into SPV. That would be the ultimate solution here.

Can I, can I be provocative?

Please. Absolutely not.

I thematically agree with me. I've been saying this forever, like, which is that the— yes, exactly this, which is there obviously should be a test. There's lots of unsophisticated investors that have $1 million and blah, blah, blah. And like, you just take a test and then you can invest whatever the hell you want. I'm a big free markets guy.

I get it because everybody who's driving on the road right now is safe and not going to cause—

look, I just think it's ridiculous. I'm totally with Jason. And this is like not a new problem where it just makes no sense that it's literally how the rich get richer is like, oh, let's take all the best investment opportunities and let the rich people have them. Like, it's It's insane. So I'm with you on that. But let me play devil's advocate, which is, you know, the rate of what you need to be an accredited investor is actually shockingly low. Like it used to be high, right? Like, and the funny thing is, just with inflation over the last 20, 30 years, it went from being like, I think it's like $1 million in like liquid net worth or income over $200,000 a year, $300,000 joint. That was a lot of money when the rules were written. And the natural law of inflation just made that not that much money. Like, I'm not saying it's nothing, right? It keeps some people out. But I don't think a lot of these SPVs— like, people who aren't accredited investors don't have a ton of liquid capital they're playing with. Like, I think these SPVs are like largely accredited investors, right? They're supposed to be in most cases. And it's not really— it's a problem to solve. It's not as big a problem as it was 10 years ago just because of inflation.

It's 7%, 8% of the country when you're correct, because of inflation. You know, doubling every 10 years, you know, whatever.

I think we're a tech bubble. But also it's— Jason, here's the thing is like, that's totally true. And like, we're in this crazy inequality era, right? Like, it's wild what's happening. There's like the rich getting— that's just what's happening. That's the nature of tech. AI is compounding fine. But like when you start slicing out who has investable assets, it's not really 7%, right? Because like half the company, half the country owns no equities, right? Like, so really it's a lot higher percentage than people like to admit in terms of people who own equities. Yeah, only half the country owns equities at all. Right. And so like when we're like, this is this huge problem, it's like, you know, 30% of people are accredited investors who could possibly invest. And like the people who aren't, should they really be buying SpaceX with their $10,000? Like, I don't know. It's a narrative I love. I mean, I'm an investor, but like, it's a narrative. It's like not exactly a cash flow driven valuation.

I just think we're attacking the wrong problem. I mean, personally, I think everybody should have the ability to lose tons of money betting on venture capital because they already have the opportunity to lose shit tons of money buying a house with 5 to 10x leverage.

Leverage.

So like, people don't—

that's not where they're losing their money.

Yeah, I mean, prediction market gambling.

Yeah, people lose money betting on real estate all the time. The, the thing that I think we're not attacking is the lack of transparency from the company side, because like everybody talking about, oh, I need to be a credit investor and know what I'm doing, like, who's got access to company financials when they're like doing this investing? People are not investing on balance sheets or financials, they're investing on vibes.

Like, well, I'm just getting to push you, Dave Erickson. Also, like, everything's just priced on vibes anyway.

Like, well, it shouldn't be, but that's what I'm saying is like, you know, we collectively, venture capitalists and companies, should be pushing for more transparency information in private markets as well as public. You don't have to like disclose everything, but I think it's a disservice to the industry when every company wants to be like completely private with their information. Like, if you're doing well as a company, why shouldn't you want to be fucking telling me what your revenue growth and profit are.

Preach. That's the whole point. I absolutely agree with that.

And there should be a lower cost of capital available to people who want to provide that transparency. Right now it's the opposite. We're giving people cheaper cost of capital for being private. That's fucked up.

Sarbanes-Oxley made being public super annoying and expensive, right? Like back in history. And like, it just is like not—

we went too far.

It's just like it was a terrible set of regulations, right? And so all of a sudden no one wants to be public. What you're basically pushing for is effectively half of the public market, which is like, yeah, let anyone buy it and like let the information be public and make it all public. That's like half of it. Take out the governance piece. That's what it is. Like, the question is like, what standards? Like, whatever.

After we get back from this quick commercial break, pause for the cause. Jenny, I want you to give us your opinion of what should happen in terms of accreditation and private market transactions like this. But let's take a moment to just turn on our applaud AI readers. And thanks to Plot for supporting the podcast. I use this all the time to, uh, take notes when I'm on hikes on the ranch, which I did this morning.

Jason, you have two different types of plots, one that goes in your phone, one that clips to your chest. Which one do you prefer and why?

Hmm, that's a great question. Uh, when I'm in meetings, I like this one, and when I'm skiing, I wear this one. When I'm, uh, yeah, otherwise I have it on the back of my phone. I basically have both with me at all times.

Double fisting, as they say.

Well, skiing, that's impressive.

I leave it on for the whole day while skiing, and then I just talk to myself like a lunatic. And then at the end of the day, I get a transcript and action items and I say action item or blog post or notes or to-do list. And then it just organizes it all for me. Give them the code, Alex.

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All right.

Okay. Jenny.

I run a small fund where we, um, our business model is SPV. So when I see these huge statements, um, you know, we write small checks at the free seed, and then we offer, you know, SPVs to our accredited and wonderful LPs who happen to be a community of founders. So when I see these broad statements by, you know, the model companies, it gets me a little bit nervous that there's going to be kind of broad crackdown. So while I agree with you that there should be, you know, democratization and that there should be standards, you know, I also don't want that encroaching in our business model, and I don't think that's necessarily fair. So I don't have, you know, any huge insights on it, but I think it was kind of overblown. And as most people said here, a lot of this is already baked into the docs and people are just getting, you know, kind of shafted.

And Jenny, when you, uh, have this small seed position and then the company gets big, you have the right to that pro rata to your syndicate, right? That's in your docs.

Correct.

Uh, that's how I structured mine.

And then also, you know, we have great relationships with our founders and so we're in communication with them. They're introducing us to their lawyers and it's all, you know, a very transparent process.

Do you ever have a founder say, hey, thanks so much for, supporting us early, but we don't want you doing SPVs now. We want you to waive your pro rata. And then how do you handle that?

I have had that. Um, it makes me quite grumpy. Um, cause quite frankly, you know, I was their first supporter before everyone was excited. And, um, you know, we have it in writing and, you know, I do believe that you have to earn your pro rata and hopefully, you know, we do that, but it happens very infrequently, I would say. But once in a while it really gets under my skin.

Do you hold your ground?

Um, I have, um, I'd say sometimes it's, it's more, you know, you kind of just write off the founder and you're like, all right, well, this wasn't the right—

Oh, don't, Jenny, don't say that. Even if you sometimes cave, you have to hold the line, which is we never cave.

Yes.

Don't put it in the— don't put it out there that you cave. That is not what you want for us or for you.

Yeah. I, I'd say it's happened. I've, I've invested in 300 companies.

Contractual rights are contractual rights.

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Correct. Uh, it's— I've invested in 300 companies. There've been 3 or 4 cases where the founder has, you know, come back and basically, um, you know, tried to get us to waive our pro rata. And I will tell you honestly, it's sometimes it's not the founders, it's the big guys, the big, uh, investors.

No, the big investors, they will always say—

yeah, whenever they're putting pressure on the founders. And then that puts me in a position where, you know, I have to call up the, you know, Series A or B investor and say, listen, um, you know, this probably isn't what you want to be doing.

So, well, I mean, for what it's worth, I mean, this is like for sure in hot rounds, the Series A investors will always tell, especially young founders, yeah, oh, you have, you have pro rata rights, but seed investors will always waive them. Don't worry about it. And I've had that conversation several times and like, yeah, for me it's like a complete nonstarter. It's like, I will sue you, right? Like I have contractual rights and then that's it.

Yeah.

So I'm sure you want to be putting it out there that suing founders—

Yeah, I will 100% put it out there that if you sign a contract with me for pro rata rights, I like to come back and try to renege on them. Yeah, I will sue you.

I take a slightly different approach, which is like you try to educate and support the founder and basically, you know, try to get them to push back. And if that doesn't work, then you call the Series A investor and you say, I'm never sending you any deals, you know, again.

Yeah.

Jenny, can you explain why these major funds are pushing down so hard on seed stage investors to give up their pro rata rights? Everyone in this conversation knows, but not everyone listening understands that dynamic.

Yeah. In a competitive round, there's just not enough to go around, right? So we recently had a case where it was a Series B Series B, and there were, you know, 3 kind of leads, right? And it's like, you can't get 3 people all getting their 10% into a round. And so what the founder did was the founder came to their pre-seed investors and said, hey, I'm going to need you guys to sell. We were like, well, it's not actually how this works. So why don't we explain this to you? We went back and forth a bit. And ultimately, we did not, but we did have some conversations with those Series B investors who we supply deal flow to as the smallest person on the cap table. And, you know, it kind of all worked out. So there have been a few cases where it hasn't, but very few.

I just want to understand broadly, though, it sounds like the secondary market itself is not in trouble. The worst actors in the SPV market are over their skis and just got their earlobes flicked, Dave Erickson. But the model of buying shares, you know, on the secondary market in general will stay as it was, will hold. This will not kill it.

I don't think this is going to end the secondary market or the SPV market. It probably will clean up some behavior that should have been cleaned up anyway, and that's probably a good thing. I think future lawsuits might result in more regulatory oversight, and that would be interesting to see.

Yeah, this is going to blow out the bad actors in the space, uh, because the people who are buying into it, you know, who are saying like, I want to put $250K into Anthropic or SpaceX, and they're like, yeah, give me 10%. And I got this synthetic thing and yada yada. They're just gonna be like, this isn't worth the risk. I'll just wait to go public. And I think that's, it's going to put cold water on that group of people. I know with, there was one robotics company that was funded like, just like crazy valuation, all on SPVs, no VC pricing around. I think it got to like $30 or $40 billion. I wouldn't say the name of it, but I may, may have just inadvertently said the name of it. And, uh, yeah, there was all kinds of shenanigans going on. And then the founder has to worry, am I losing control of my cap table? Am I losing control of the story and my valuation? Because if they're going out there promising stuff, they don't have information rights. They're telling a story to investors. Is that the story you want? And that's the problem. Yeah, there were people who were telling me the Figure thing was just a wild west of all SPVs they'd ever seen. I don't know if that's true or not. No dig to the founder.

But I just wanted to add, you know, one thing, which is I think it was Anthropic. They actually named some of these broker guys who are in my inbox every day, and they actually named some groups. I won't say here that actually aren't brokers. They're just, you know, the back office or the container for the SPV. And those people had to then come out and say, like, listen, like, we, you know, we check all documents and like, we haven't done anything, you know, here.

So I keep thinking they're named Sim Desai, the CEO and founder of Hive, wrote a very prominent letter this morning about that structure.

Right. But I'm not talking about Hive because they are, as far as I understand, a broker. But I think they named Sidecar, like some other folks. Um, and you know, it's just, I don't think we should scare people away from the industry is my point.

Well, no, I agree. I am curious where you guys as VCs, it's like, who the, where the hell is all this money coming from? Because like, it's an interesting thing. Like, you know, the Middle East is kind of like out of money, right? Like, they—

That is so not true, Sam. You are directionally wrong.

I don't know.

I heard things.

Oil prices are up. You think they're out of money in this environment? Come on, dude. Do the math.

Listen, let's see how it plays out in the next few years. My, my, my sense is, is that that honeypot, which has been the last few years of ridiculous amounts of money, is like slowing and going to stop. You know, VCs keep—

you're absolutely wrong.

I don't know.

Those guys went into Anthropic and SpaceX just as much as anybody else.

They still have a lot more money than I do. But I think Sam makes a good point that when you look at the minimum oil price for many governments and oil-producing countries in the Middle East, it's like $100, $110, $120. And so even though oil prices have rebounded, Dave, that does not mean they have massive surpluses that are new that are coming into their coffers. So I've always thought that the big push into AI was get in early while we still have the capital, build something that will endure. And then as the oil industry slowly—

Alex, the sovereign wealth funds of Qatar, UAE, and Saudi have over $4 trillion. The royals across those companies have hundreds of billions of dollars, but they are not shutting off the spigot.

They pulled out of Live, right? They're pulling back on sports. They're pulling back, rationalizing their portfolios.

Saudi specifically.

I can, uh, I can adjudicate this, uh, officially. So Dave is in the Middle East, he's very close to it, uh, and Sam, you're absolutely correct, they did get over their skis in a lot of projects. Neom specifically and LIV would be great examples of that, where maybe they started spending a little—

for sure, Neom for sure, for sure.

And then in some cases, uh, they were maybe doing too many venture funds and didn't have, um, uh, the, the infrastructure in place maybe to manage these things properly. And I think they're catching up to their spending. That's what I see when I go over there is, hey, we need more partners, we need to have more eyes on these projects, and they're just refining their strategy. So I call it like splashy cashy. Somebody who's made a bunch of money goes to the casino, they just start playing a bunch of games. Then the next time they go, they're like, okay, which games am I going to play? Where do I want to put chips down? So I think this is just the natural second decade evolution of their participation in private stock, stocks generally. The, um, specific thing to your question, Sam, of where the money is coming from, we have seen an upper— the upper middle class or the lower part of rich people in the United States has grown massively. So everybody's moved up, but there's a very specific group of people which is equity and owner- based middle class. And when you see the charts of how that's grown, it's kind of nuts. And it's grown at the expense of the lower and middle— middle class is the upper middle class moving into—

so it is. But just to push then, to connect the dots, is it is accredited investors?

Yes, 100%.

It's accredited unless they lied on their self-accreditation forms, which I would say maybe, you know, low single-digit percentage people do.

So mine is anecdotal, but we just did a very large SPV in a buzzy company and all the money came from Palm Beach. So all families there, not Middle East. That is concentration of wealth in certain areas in this country, including South Florida. And they all want into certain categories.

So their 401s are doing really well. The businesses they own, whether they own a restaurant or an HVAC or a finance company, like the rich are getting so much richer because of the stock market. And the poor are staying the same, which goes to your point.

Certainly the last 5 years. Yeah.

Of what's happening in the United States in terms of the haves and have-nots. If you own equities, you're running away with it. If you don't own equities and you're making income, you're getting hosed.

Yeah.

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Yeah. And the interesting thing about this is it's not just technology. There's also this like feedback loop cycle to the market, right? Where it would— basically what's happening is like the market is going up because the market went up. Up, right? And that is a real— I mean, that is like a classic— it's interesting because on one hand, that's classic bubble dynamics, right? It's up because it's up. But on the other hand, I keep going back to this thing that we as a society have decided to start storing wealth just in stories, right? Not in cash flows, right? If you think about it, it's like—

give you an example.

Well, I just say like the global clearing price. If I said I have $1 billion of free cash flow, there is a global clearing price for that, right? Based on the growth rate or whatever that we could all model and everyone globally would basically model the same way. Right. And you come up with the value of that cash flow. Right. None of the assets that Anthropic, OpenAI, SpaceX, all these enormous numbers, the tie to business logic is basically nonexistent. Right. Like in terms of valuation. Right. It's a tie to—

for those, for those companies. Yeah, I agree.

But that's basically everything in tech, right? Like, I can't name the last—

that's, that's not true. That's not true. There's companies that are still valued on fundamentals. Not— there's more companies being valued on vibes recently.

Well, but I'd say the ones that are valued on fundamentals, like the movement in the stock has much more to do with the vibe shift around it because it's just a multiple expansion question than like revenue growth. Right.

But this is my point, is that I think, you know, we're, we're leaving fundamentals behind when we should absolutely be paying attention to fundamentals. And in our podcast every week, we focus on valuation corner and we analyze companies. And there are some that are way crazy out there and there are others that are—

Example, Palantir comes to mind.

Well, Palantir got ahead of itself. Yeah, kind of crazy.

Well, I would put this— just my basic point of feedback cycles is like, if you were a— like, being a fundamentalist, if you're a value investor over the last decade, you're screwed, right? You've made like no money, right? Whereas if you're a vibes investor, you are like crushing it, right?

Like, until you're not.

I agree with you. I struggle with this. I'm not saying that the vibes investing is right. In general, I'm not a vibes investor, and I'm not an Anthropic or OpenAI.

But if you look at the public Mag 7, you know, 5 of those 7, maybe 6 of those 7, aren't crazy on fundamentals. Tesla is a little bit crazy on the fundamentals, but the other ones are not. They're, you know, you know, 20 to 25 PE, maybe.

Jenny, are we, uh, are we massively ahead of our skis as, you know, in terms of the public markets and the valuation of these companies and how they're being valued. And will we return to maybe a scale at some point where we actually weigh them and say, what is the free cash flow from this company?

I think it depends if there's other asset classes to go in, right? A couple of years ago, everyone was very excited about credit. You know, that turned out not to be a great place. and so they're just looking for, you know, interesting opportunities. So right now the stock market's crushing. I think what we're here all interested in is what's gonna happen, you know, as these companies go public and more liquidity kind of starts coming back. So that, that's the question I'm more interested in is like, it's really hard to raise capital right now as a, you know, pre-seed investor. But I think, you know, the floodgates are gonna open with Space X and these other ones. Great segue.

Here is, um, the share of families in each class, 1979, 2001, 2024. And what you're looking at here, really is the lower middle class going from 24% to 15%, the core middle class going from 35% to 30%, and then the upper middle class went from 10% to 31%. And then rich people went from 0.3% of our society— it went up 10x since 1979. So you have tripling of the upper middle class and 10xing of the rich.

What's kind of interesting though is this chart says that the poor and lower middle class are declining.

Yes.

So like, I guess the question is what's the basis of how you define these buckets?

Yeah. What are the, what are the bands here for income or wealth, Jason?

Yeah. Let me look it up while we continue the conversation.

But on the point about exits and liquidity, Jenny, you make a really good point. This week we saw Fervo Energy go public, venture-backed. We're seeing Ceribus go public, venture-backed. A little bit of liquidity there. Jenny, do those two IPOs drive any meaningful amount of liquidity through venture or are they relatively sideshows as we wait for the big three, SpaceX, Anthropic, and OpenAI?

My understanding of LPs is that, you know, they kind of work on, you know, sentiment and vibes and not necessarily reality. So I think seeing a few things gives them hope. And we start— I mean, we can literally track this, like the amount of inbound we get from LPs and how fast they kind of get back to us based on some of these IPOs. So I don't think that moved the needle necessarily, but I think there's a lot of anticipation of some bigger ones. And I think those will move the needle, but we're actually seeing a lot more inbound.

We'll see.

There might not be though. I mean, this is the problem. I mean, I have this on a personal level, right? Like, which is, you know, I have a relatively small— it's all relative— slice of like the SpaceX, you know, thing. And I'm excited. I mean, like, you know, that'll be a great return for me personally, just from a PA perspective. But it's a really interesting question about whether you sell and redistribute back into other things or not. Right. And it's not clear. Right. And I'll give you the two—

if you were an institution and that was really your job and you were waiting— I don't know.

But no, I mean, I talk talked to a lot of— we have a lot of institutional LPs. I mean, there's a similar question, which is like, there's a really big difference between institutions that pay taxes and then those that don't, right? So if you're a tax-free institution, you can reallocate for free. That actually makes sense. You maybe take some— but if you have to pay taxes, you're paying 40% taxes, 50% tax, we call it 40 in California. It is so expensive to redistribute. And on the flip side, you know, we are living in this new feudal age of like effectively these like fiefdoms where numbers go up because numbers go up and everyone has to buy SpaceX and that it. So it's actually really unclear. I understand historically how this would work, but it's really unclear to me how this redistribution is going to work on these IPOs.

Dave, what do you think?

Just to get to some numbers here on the Cerebras IPO, projected float is going to be probably between $4.5 to $5 billion back to investors. That's meaningful capital. Might be the only IPO we see before SpaceX and after that, because SpaceX is going to take up a lot of the available capital in the market and maybe Anthropic and others might before the end of the year. But, you know, I think our numbers are way out of whack because we're focusing on Anthropic, you know, SpaceX and OpenAI being these massively large IPOs. Venture capital doesn't need that big an IPO to have meaningful paydays. Like, it's still fine to have billion-dollar IPOs. Uh, that makes me feel returns.

Sam brings up a really good point, which is if you are a family office, right, and you've got 20% allocated to venture and you've got, I don't know, 40% in equities, you're eventually— if, if your pipeline is your VC firms, you know, and you're in Founders Fund or you're in Sequoia and your VC fund is delivering you SpaceX shares or delivering you you know, WhatsApp, uh, Facebook shares via the WhatsApp and Instagram acquisitions, and then you had sold those previously, uh, booked the gain, and then you wound up buying them in the public market, like, it's just not tax efficient. So you might as well just sit on them forever. And then, you know, this does create a redistribution issue. I think Sam's correct there. And then it's going to really matter the company. If you're, if it's an Elon Musk company, Because of the Elon premium that he's created the future so many times now, that's like a venture investment and a public investment. If you look at Tesla's valuation now, it's not a car company anymore. It's going to be remembered as Optimus. The company will only be remembered— they will— nobody's going to remember Robotaxi or cars, I predict. They're going to remember Optimus because that thing's going to sell a billion units and they're going to charge by the hour for that product. It's got unlimited upside. And if he figures that piece out, or data centers in space, for SpaceX, this is like, uh, unknown cap, unknown TAM. These TAMs could, could break people's brains in terms of how big they are. So you basically have no choice but to hold it, I think, forever if it's like SpaceX or Tesla, which becomes self-fulfilling because if everyone's holding forever, the number go up.

And like, this becomes an interesting disconnect of what's going on, which is if you believe the future is a future of feudalism 2.0, where you have a few hyper winners that have the cost of capital zero. They have all the things right. And AI is fundamentally a compounder. Then like it's just an incredibly different configuration of the venture landscape and like what you want to allocate to than what we've seen for the last 20 years where the whole story was software helps insurgents beat big guys. You know, I've been saying this for a while, that AI is just a strict benefit to like the winners effectively, like cheap cost of capital. These are like the things that matter. But I just think we have to come to terms with the fact that like the venture capital the next 20 years is just going to be massively different than it was the last 20 years. Right.

What do you think, Jenny? How is it going to be different? Do you just take your fund when you raise your $50 million, put it into a Mag 7 index and then slowly draw down from it? And I mean, I know this sounds ridiculous, but in a sense, you know, that's what But these crossover funds do. They—

Yeah, we've been seeing that for years. I mean, people are getting really grumpy when all those funds were putting money into Bitcoin and Solana.

Yeah.

And the LPs were like, screw you, I could do that too. Why are you charging me a fee? So I'm not sure that's the future of venture capital, but getting back to like the trickle down, I would say maybe I'll amend my answer, you know, a slight bit that some of these, you know, although it may not be enough to transform the liquidity issue, I mean, a small investor like us We're, we're not in some of those names you mentioned, but you know what, the folks that put money into us are, and I don't mean the LPs, like, you know, the benchmarks, the foundations, they all put money into early stage funds. And so then I have more money that I can deploy to early stage founders. So I actually think that it'll be very healthy for the cycle, even those small ones. I mean, obviously, you know, the bigger ones will be even better, but, um, I'm pretty excited.

I think we need to temper our enthusiasm for tech and vibes and the potential for investing in companies that are going to have big outcomes. With the strict valuation fundamentals that are still required. Like, you know, when my son was 16, over the summer during COVID I sat down with him every week. We said, hey, let's go take a look at a public company. I'll give you $100. You can go buy it on Robinhood. But I want you to explain to me like why it's a good buy. Let's talk about revenue growth and profits. Let's talk about balance sheets and capital and like know whether you're investing on fundamentals or whether you're investing on vibes. And it was okay if you wanted to invest on vibes, but I was like, like, you know, why the fuck are you investing in this company when PE multiples are way outta whack and this one's a reasonable— the same is true for venture. We can't just say like, hey, everything is gonna be 100x, 2,000x, you know, sort of outcome and throw fucking valuation out the window. You know, early stage valuation entry points still matter and, and fundamentals still matter. Like, I don't want to invest, I don't wanna give my money to VCs who think that it's all vibes and not based on fundamentals. Fuck that. I want you to understand the numbers of the companies you're investing in. I want you to understand your portfolio model. I want you to understand whether, like, makes sense to do follow-on investments or not at new prices. Math still fucking matters.

Of course. Like, Dave, I'm like you. Like, look, I like— we're incredibly cheap at Slow Ventures. Like, we don't do it.

Well, we are.

It's okay to not be cheap.

No, we're cheap. We're cheap motherfuckers, right? I don't know. This is like— and you are allowed to say that. Like, twist. Okay, good. And like, you know, it's like you look at cash flow based deals, it's like it was reported by the FT and a bunch of others that, you know, OnlyFans just did a transaction valued at a $3 billion valuation. Financially, that's a steal, right? Like, it's—

yeah, because what is their— what is their earnings? I mean, they make $400 or $500 million in profit a year.

Yeah, I shouldn't comment. But the point is, like, I know you were trying to buy it. The, the, the point is only that, like, yes, there's always going to be a financial clearing price to things based on growth and fundamentals. But in the last, like, 5 to 10 years, the people who have done well have not done that at all. Right. And the question is, what happens to the industry because of that? Like, you know, one tweet from Elon about space data centers makes your company worth $1 billion, right, on vibes, right, in the market, you know, versus like if you go triple, triple, double, double on a software company right now, truly no A-round investor cares.

Right.

Which is so like it's such a great business. It could be a money printing machine. I, I, you know, at some point free cash flow is going to matter to people, and I think it's going to be this time next year after these companies get out. Then there are going to be institutional investors who are going to start looking at Anthropic and OpenAI, and they're going to take out their abacus, their spreadsheet, whatever, their back of the envelope, and they're going to just go, hey, math doesn't math. You're losing this much money on every transaction. When does this become a free cash flow machine? When does the J curve end? How do I know this? I watched it with Uber up close and personal. The entire narrative of Uber and ridesharing was it can never make money. It will lose money forever. It's going to constantly go down that J curve. It's never recovering. And then I was on CNBC famously one time and I just said to one of them, like, would you pay, would you stop taking Uber if it was $3 more a ride? And they were like, no. And I was like, okay, who would? And they're like, the bottom 3% of users. It's like, okay, great. You fired your. Bottom 10% of users, and then you became wildly profitable. And that's exactly what happened. But it took a changing of the guard and the changing of the cap table for that to happen. And that's about to happen for SpaceX, Anthropic, OpenAI, and Cerebras. They're all going to start getting weighed.

Unless it doesn't because the retail investor base of your upper middle class, Jason, is big enough and vibey enough, right? It's a GME situation. Right? Where it's like it actually doesn't have to be reality at all.

No, I don't think Sam's right. I think that we've, we've hit the top. I think we've hit the top.

Jason, why do you think, why do you think Elon's making a 30% retail allocation in the IPO?

Because he is a total exception, and I think it will get filled. The question is when.

I agree with you, it'll get filled.

Who, what other stocks are going to go down? Where is that money going to come from? Is that coming from somebody's 401k? From a Vanguard fund? Is it coming from their cash on hand? Is it a second home that they sell to buy more SpaceX? Where is that incremental money coming from?

If Elon gets his way, it's going to come out of the NASDAQ 100 and eventually out of the S&P 500.

Yep, correct. Yes. And that— so that's my point, is this rebalancing over the next year is going to be vibes now, get on, get your shares, and then a year from now people are going to start weighing these things and saying, well, I think what I could imagine, Jason, is that people—

I mean, this has already happened in some places where people are, you know, on the margin pulling out of Mag 7 and going to chips in various places. Like, but like, I could imagine that the P/E on some of the Mag 7 becomes so attractive that people just can't help themselves, right?

And like, these on the Mag 7 are, are actually not crazy. Like, you know, again, Meta at 20, Alphabet at under 20, Microsoft, Amazon, next year's Apple, about 30. Tesla's the only one that's really out of range there, right?

Because it's a meme stock.

Yeah. But if you buy into those companies, you get allocation to the other private firms you care about because they're all investors. Next up, Jenny, you said something that I thought was absolutely fascinating. You told the story that I don't think I've ever heard told before. Uh, you said that you heard about a founder that closed a $50 million Series A from a top-tier VC, and then a half year later, they plan to return the cash to investors. You add that Clyde will displace the product and erode the value. This is really happening. Most people are not talking about it. It's kind of wild. Tell me more about this story and how common it is.

First of all, I think people don't want to talk about it because it's scary to admit that this is happening and it doesn't really serve their interests of raising capital from LPs or telling the narrative, you know, that Silicon Valley is healthy and everything's good. Now, I'll preface this by saying, like, I'm long-term bullish. I will keep on investing in startups and I'm very excited. But I think people have underestimated the impact. And this isn't just about— so in this case, it was a founder. He'd raised about $15 million Series A, and he'd been working in the legal tech space, but not— I mean, this wasn't just like an application layer. This was a deeply technical second, third time founder who, you know, thought that he had a really interesting data moat and was working very, you know, hand in hand with a few firms to kind of pilot this and design it. And he wasn't saying, that just because, you know, Claude released their, you know, their MCP connector, that he was going out of business. But what I think is interesting is that these savvy founders are basically taking a long view, kind of looking back and not saying what's happening today, but like, where am I going to be in 5 years? And where are these models going to be in 5 years? And I think that's what scared him. And that kind of freaked me out. And then when I started telling some of my peers at other firms, they all seem to have stories about this. Maybe this one seems extreme, although it is quite true. So I think it's a real thing and it's a threat and like we're not talking about it. I don't think that serves our founders. I think we need to have more, you know, open conversation about what, you know, moats can be and not moats today. Right. I mean, I think everyone has a theory on, you know, what's interesting today, but 5 and 10 years out.

I think it's moats. I think it's also just like what people want to work on at this moment. Like to run a company and build a company, like you need two things. Like one is you need a great business and the second is you need to care.

Right.

And like the great business part, I couldn't agree with you more about like We spend a lot of time on what's a moat, how do you really think about that long term. But we've also, we had one founder, this is years ago now, one founding team, excellent founding team, like couldn't be a better group of people doing a thing. And they called up and they said, look, AI is about to happen. This is the LLM moment. And we've studied this our whole lives and we're building this company. And candidly, we really need to work on this. This is what we've trained for and the moment we're waiting for. And they're like, so we're effectively returning capital and going to go take take senior positions at OpenAI. Good for them to have that perspective, which is like, this is my life, this is my next decade. And if the world is changing so fast and things change and all of a sudden I just emotionally have to do something, I respect that.

Yeah, I think there's opportunity costs, especially for seasoned founders. And in this case, it was that. It just seemed quite extreme. They just raised the money. They just convinced a top startup.

I mean, it's funny. If, for instance, if Jenny and you and I are talking about this, I am extremely serious about pro rata, right? Like, hear me now, startup world, like, you're not— I was like, I'm crazy about that. But actually, if a founder comes to me and raises money and like 6 months later is like, we're wrong. And like, by the way, our opportunity cost and like the really expensive thing, especially early, is your time and effort. It's not the money, right? Like you're like, I'm going to return money because like, this is not— it's better for everyone. Like they're not going to win at a thing they're not super passionate about, right? The world changes fast. I candidly would rather have the money back and redeploy it if that's the situation.

I mean, I'll just take the other side in that, you know, you're betting on people at the pre-seed and you're betting on them to figure it out. And I'd rather not get my money back, but have them try a few different things and try to, you know, skate where the puck is going.

I get it.

And I think you have to just be fast in this market, you know? I was talking to someone that runs a kind of quasi-consulting, AI consulting business, but there's, they've productized some of it and they said our team, you know, rips everything out every 2 weeks and starts again.

I get it. It's just like ultimately, like, it's like, it's running a zombie company as a great person in a moment where the world is changing so fast is like, it's like the worst feeling you could possibly have. Like there's this amazing thing going on and you're boxed out of it because I'd like rather just fix that. And like, life is long.

I think whether I'm investing in an entrepreneur or another fund manager, I want them to feel like they've got an edge and have conviction and passion for what what they're doing. And so if they've lost that, then sure, I don't want them doing it either. But I want to invest in people who think they can still figure it out.

All right, we got to drop Sam off. Sam, thanks for coming on the pod, and we'll see you next time. Thank you. Hi. He's got a high, um, um, hot take per minute, so we, we allow him to leave early. Check out his podcast, More or Less. Everybody has to have a podcast now, so more or less, you got to have a podcast. You need to control your media channel.

He's got to go beat up those founders who didn't give him pro rata.

He—

somebody just said, oh my God, uh, we're challenging you on this. He's getting on the phone with his, uh, attorneys. You know, if a founder gets to the point, Jenny, where they're like, um, I just can't do it, um, I'm not living my real life, I kind of feel like it's, uh, like one of these kids who, uh, goes and does ayahuasca, or they go to Burning Man, and they, they they do LSD or something, they come back and they're like, I'm living a lie. I need to go be a yoga instructor. I need to start a surf camp in wherever. I'm just like, you know, okay, Godspeed. Godspeed. I mean, everybody has somebody in their circle who came back from Burning Man and their brain was broken and whatever they were doing is over. Like, they left their spouse, left their city. And they're in Kauai living their best life. Mazel tov.

Or they came back with a great vision for a new startup. And I'm like, great. I wanna give them some money.

Yeah.

But it is frustrating, Jenny. I, I always think to myself, like, I, I always say the founders, what are your 3 other ideas? Do you have another idea? We've already got the capital here. We bet on you. What else?

I'd be curious, um, if you're seeing this too, Jason, around first-time versus second-time founders. We are finding that the first-time founders will just like, you know, put their nose down and just like, try to get through and burn the money potentially, but they're going to try to find something, the passion, maybe the ego. And the second and third time founders who've had a lot of success or some success, it's just opportunity cost. And in this case, it felt like a team, very seasoned, very technical, had a lot of success. And they just said, you know what, like, it's not going to work.

It's a function of how great those offers were. I've seen some of these offers and to put your nose to the grindstone at a startup for 10 years, 15 years, and the outcome is unknown, or you get a guaranteed, you know, $10, $20, $30 million package from OpenAI, and you know it's gonna 10x from here, so it's really a $300 million, and there's a secondary market as we talked about in the first thing, and I could just start selling my shares immediately. You know, I, I told somebody, Recently, they were like, 99% of my net worth is in one of these companies. And I just said, sell it all and put it in index funds, like, or sell at least half of it, put it in index funds, go buy yourself, you know, a house and a ski house. Like, by the way, that's the advice I gave myself, which is just keep building that foundation that's rock solid with the speculative stuff and get yourself diversified and out of these because If these companies are trading at 30, 40, 50 times revenue, okay, there's a chance that they'll catch up and their earnings will get there. There's also a significant chance that open source and other products win a big part of this, and tokens just are the, the fastest declining commodity in the world are tokens. Like, the cost of a token is plummeting because more data centers, better energy, photonics between the chips, language models that are more efficient, open source, distributed computing, TAO subnets that are, you know, racing to the bottom. So if these things keep going down, I'm, I'm not gonna give myself a clip like you'll only ever need a 10-megabyte hard drive. Obviously people are just gonna keep using a phenomenal amount of tokens, but it just may not be the most profitable business. What if the business looks like a bandwidth provider? What if the business looks more like a hard drive provider and it's a commodity business that frees races to the bottom. It just— it might not be the money printing free cash flow machine that people think it's going to be. That's a possibility.

If it's not though, then what is? Because if AI really does subsume a number of industries, like we're seeing progress on the legal field from Anthropic, they just dropped SMB products, and if they don't make money, Jason, then who does?

The hardware, the energy company, the data center, the application layer, the person running a law firm that needs everything, people, and charges, you know, the same amount of money, but, or they charge 20% less, but the cost to deliver the products 40% less and their margins went up. Like there's a lot of permutations of this. And anybody who says they know exactly which one works and where the value gets captured, it's just not telling the truth. Right.

Jason, I think you pointed out a good, um, you know, I think for a lot of founders and actually for VCs, this happens later too, is you're concentrated in a single asset. You don't have access to diversification liquidity. That's literally why the secondary market exists.

But you help with that, Dave.

Go ahead and give a plug.

Yeah, I mean, it's—

well, I'm just saying I did the same thing, you know, 5 or 6 years ago when I was looking to sell a piece of my carry in my first 2 funds at $500 million, which had become very concentrated in a couple of winners. And I wanted to take a little bit off the table and buy a house. Yeah, I think that's the big reason the secondary market exists, at least for founders and employees who are selling, is there's 100,000 people in the Bay Area who own $1 to $10 million worth of equity. It's probably 10,000 people in the Bay Area who own $10 to $50 million worth of equity, and they can't afford to buy a house in the Bay Area that costs $3, $4, $5 million. Can't even qualify for the loan, you know, to buy a house. And I think that's why you're seeing more of these tender offers and a lot of companies providing, you know, regular liquidity programs is to give them an outlet because, you know, IPOs are taking 15 years now. The employee vesting schedule happens, you know, in a third of the time it takes for a company to go public.

Like.

So I think that's great, but I also think like, you know, these companies like Intercom, you know, that have to reinvent themselves and they're pushing through are very inspiring as well. And if you find a founder like that who's just gritty as hell and wants to, you know, then become an AI-native company after all these years, like, I think that's pretty awesome.

And I was an early investor at Intercom, and Owen coming back and figuring out Fin was amazing.

Amazing, right?

That doesn't always happen.

There was a lot of commentary on the how much money does it cost to be kind kind of set in San Francisco conversation. OpenAI had a tender offer for employees last year. Turns out 600 investors— sorry, 600 employees sold stock, $6.6 billion, which led to this tweet from Shruti from Array VC that went incredibly viral. She says the people who sold their roughly $10 million will still be, quote, SF brokey, 50% in taxes, $3 to $4 million in cash for a house, probably needs another million of improvements, leaves you with $1 or $2 million. Kids on the way, nanny's $100K a year, daycare's $45K a year, camps, extracurricular, $30,000 to $100,000, Tesla $50K. They will still be at the office 9-9-6 and not going to enjoy any of this. Only have money to hike and camp. Um, if $10 million—

they'll be just fine.

Thank you.

Yeah, there's a high-class problem there.

Yeah.

And that's also certainly for those folks, just one secondary that they did.

So yeah, but they have a lot more upside.

Yeah.

I don't think the perspective though— she got dunked on a little bit, but I don't think the perspective is that that, that far off when everyone looks up to near billionaires now is like a second class compared to the $100 billionaires and possibly compared to the first trillionaire. I think people's expectations have really changed and I don't think it's the right time for technology to become richer in a visible way. Given how AI is pulling right now, it seems to be a mistake.

Well, first of all, get out of the bay. Get out of the Bay Area.

Yeah.

By the way, in Austin.

Yeah.

By the way, you can buy an acre of land for $100K. 20 miles outside the city. And so you want to buy like your 10 acres for a million bucks, like, and people have no idea how big 10 acres is.

Like, huge.

It's a lot of space. Go, go buy your 10 acres.

Yeah.

Austin and, Austin and Miami are great places to move after you've made money.

Yes.

But there's a ton of people still here in the Bay Area who are making money in spite of the high taxes and the high cost of living. Because they're making a lot of money working for the company.

Totally fine to make it there. And then when you're ready for your second or third company, if, if you're doing your second or third company and you've got a crew, like basing yourself in Austin is such an unlock, which is why you see so many people saying like, yeah, why not put my company here? And if I move my team there, they save on the state tax. So that's a whatever it is, 10, 12, 14% raise, then their cost of living goes down a third. So now they're at a 50% raise, uh, and your net— your $100K nanny goes down. Well, that's in the cost of living. These are life optimization strategies after you've made money or you're running your second company.

Yeah, nannies don't go down in price that much if you live in the Bay Area. Just let— just, just—

why? I thought that was the one thing about tweet that I was like, 100K for a nanny?

I think Keith Ray Boyce was going to be mayor of Miami for a few years, but he decided to come back.

Is he back in the Bay? I thought he was in New York most of the time.

Yeah, well, I'm just saying that a lot of people came back to the Bay Area to either make, make money or invest in people who are here.

Yeah, absolutely.

I just think, like, isn't entrepreneurship about zigging when other people zag? So if, like, you have to live in Pac Heights and you have to send your kid to Alpha School and you have to do all these things, then, like, you're gonna have to pay the price. Place. But otherwise, you have to get scrappy and move to Austin or wherever, and I think you can do really well.

I think New York and the Bay Area are still great places to build companies.

I mean, I run a fund called Everywhere Ventures, so that's in the name, folks.

What is this story about, um, the company rebranding, uh, yeah, we kind of skipped over that, but tell us about that.

I think Jenny brought it up. So Intercom is a company that early in the AI era said, we are going to re-architect our firm around building an agent. And they said it early enough, Jason, that people were a little bit like, eh, maybe, is the technology there yet? Is it going to be there? And as they worked on their customer service agent called Finn and saw real success with it, they've talked about this kind of over the last, Jenny, help me out here, year and a half, 2 years somewhere in there.

Yeah, I'd say.

They just announced Jason, they're gonna rebrand the whole company Finn and Intercom will then be a sub-brand of it. They're still gonna work on the core Intercom product. They said in a blog post that Intercom 2.0 just came out and they're going to invest more in it. But the company's clearly moving in the agentic fashion. And what I think really matters here is this is not just a new product, It's not just a new name. They stress that they have changed how they price, how they build, etc. So they've really done a full architect, re-architect of the company, and they've made it through. So when Jenny was talking about—

Well, they're starting to make it through. I mean, I think we all have portfolio companies that are Series C and beyond, and they have to go through this chasm right now. I have probably 5 or 6 that are, you know, late stage, and they have to transform. And like, some of them will work long term and some won't. But I thought this was like a great story. I mean, intercom, customer service, you think that would be the first thing to be displaced. So I kind of love that it was a bold statement, the founder coming back, and I'm rooting for them. I'm not an investor.

Do you think that the companies in your portfolio that are facing the similar chasm going from the SaaS era to the AI era or the agentic era are going to make it? Like 50% of them? 80%? How many make that jump?

The ones that move fast and took action when they didn't want to. They had to fire their executive team because they weren't AI native. They had to change their pricing from SaaS to usage-based, that was hard. So I think in my portfolio, it's probably 50% that I think might make it because they were very decisive. They had great leadership and they had vision. And it was painful, right? They didn't want to fire those people that took them 2 years to recruit, but they did. And so I think that's, that's the key.

Jason, same thing in your portfolio. Are people taking the medicine to actually get across the chasm?

There's, there's an interesting story about ZoomInfo, which helps you find leads, right? And sales team use these. Is what was like one of the first thing people did when they saw OpenClaw. When they see Cowork, they're like, find me 10 leads, find me, you know, everybody who— the first thing I did with OpenClaw was I was like, take these 100, the top 100 podcasts, tell me who the advertisers are, then go put those leads into our SaaS product, which is Pipedrive, and then tell me if they're in there already and when was the last contact date. It did that beautifully. And it was like, okay, that's an SDR job of of, you know, $30,000, $40,000, you know, offshore work from home, or $60,000, $70,000, $80,000 in the United States work from home or in a city, you know, in Austin or in Phoenix. So ZoomInfo is like the perfect example of a company that's going to have a heck of a time. That's like private equity home company, as I think it's a private equity company or a public one.

It's public.

Yeah, it's public. So they're getting their ass handed to them. They're going to need to cut half the staff. They're going to need to take an approach. But we have a company, LeadIQ, which was nipping at ZoomInfo's heels, has 8 figures in revenue. Go to leadiq.com. Their homepage is, here's AI, here's our AI solution to the same problem, as opposed to, you know, here's our SaaS software for the same problem. So accelerate revenue with AI-driven data. So they're like, here's the next person you should talk to, here's why you should talk to them. But this is gonna require a totally different company. And I remember talking to the founder, May, And she was like, okay, we have these, you know, offers to get acquired. They're not quite where we want them to be. We're still growing, but AI, you know, and AI-first companies are super dangerous. And I was like, there's really only one choice. Sell. Um, if you don't believe in your ability and you just want to get off the train and, you know, accept, you know, uh, uh, you know, what might be to you, I don't know, the bronze medal, uh, or like a participation trophy, or do you want to go for the gold? If you want to go for the gold, old, then you have to skate to where the puck is going while dealing with a board of directors who wants the number to go up. And is— and that really is the problem. You have— you might have somebody like Jenny or myself who's like, yeah, uh, we don't care about a little revenue destruction and shaking up the, the management team in order to get to the future, because we invested at whatever valuation. The later stage folks were like, wait a second, you know, we were supposed to, you know, double, double, triple, triple, triple, double, double, double, and then exit, and this was going to be incredible, and Salesforce was going to buy and HubSpot was going to buy us. Those folks are the ones who are over their skis. So the real dynamic is the board issue.

100%.

And it's just unfixable. And I've had to have these conversations multiple times with the late-stage board members who say, leave the board, sell your shares back to the company at a discount, or just leave the board and we'll, we'll take it from here, you know, and you'll see if you get a return or not. Write off the investment, whatever you got to do. Um, but yeah, it just becomes untenable.

What do they say when you told them?

I mean, it's always the late stage folks always want to believe that they're the early stage investors and they have that gestalt and they have that passion for, you know, a, a blank whiteboard. They want to have that passion for a blank sheet of paper and we're going to come up with a product this weekend. Let's do a hackathon at the company. We'll break into 5 teams, come up with 5 different product ideas. And one of them, you know, Evan Williams will say, oh, Jack, your version, this Twitter thing is what we're gonna put all our eggs in that basket. Let's go. They want to believe they're that, but their LPs are not that. Their LPs, if they're late stage like that, are looking for 5-year term, you know, returns on investment as opposed to ours, which might be okay with 10 to 15 years. So time horizon is everything, right?

And you, you just can't make unnatural Um, late-stage company pivots are not very common.

No, that's why we don't, we don't take board seats, so we can be, you know, the whisper in the founder's ear and, you know, the voice of reason, and they don't feel nervous about it. I think it's a real advantage.

I think the difference between VCs and late-stage private market investors that are not quite PE is the divide that Jason just outlined. Like, are you willing to do revenue destruction, or do you have to have this steady rise. So are you modeling or are you believing?

Yeah. I mean, and go to, uh, grin.co. This is another SaaS era company that we incubated, did fantastic. And if you scroll down on their page, you'll see their JIA product, G-I-A. Um, and, uh, yeah, go keep going down. So this is like their existing product. And then they're like, and by the way, if you're done with that affiliate product to manage influencers, here's JIA. The AI that lets your team focus on relationships, not the busy work. And what happens over time is you have the existing product, the paradigm has shifted, here's the new product, and you're trying to service both of these revenue lines and educate your market on, hey, the new product's gonna be more effective. And man, it's just, it's hard to sell two different products concurrently. I saw this with Google right now. They released a Google Book yesterday and I tweeted like, what's the difference between this and the Chromebook? Book, and people are like, oh well, it's Android, but it's built on Chrome, but it's got the Google. And I'm like, yeah, but my Chromebook had the ability to load these apps. I was like, yeah, we don't know. It's just people's perception is they want a Gemini Google book. They don't want a Chromebook. Chrome means browser. Google Gemini book means like new AI book. It's essentially the same thing. Uh, it's a, it's an Apple Neo laptop competitor. It's a less than $500 laptop.

Yeah, here's a— here's an important picture of Google announcing the Google Book recently.

I mean, it's— it is really hard. It is really hard running a legacy business that's printing money, that's growing, that has constituents internally on the board.

Hey, Satya made it work.

What? Who did?

Satya made that pivot work. That's a really late-stage pivot.

Yeah, I mean, it's just— it's, it's, it's just hard. You're going to be having— you have to have— I can tell you exactly how to say it. The only people who can figure this out is people with a high tolerance for ambiguity. Okay, like a Jedi Knight.

Give people more about ambiguity in this case, Jason. Ambiguity about what's going to happen, or ambiguity about which tolerance?

I'll give you like the idea of a tolerance for ambiguity. Taiwan Taiwan is a proud nation that's part of the incredible China story, and we respect Taiwan and China. This was the strategic ambiguity that the world gave China and Taiwan for the last 30 or 40 years, and it's worked. Chef's kiss. You don't need to challenge China. So far it's worked pretty damn well. Now you're talking out of both sides of your mouth, right? Is it a lie or is it you're holding space? You know, to use the woke term, you know, um, our company, uh, Intercom is loved and super helpful and has, is a catalyst for growth in over 10,000 enterprises. And our new product, Finn, is the future of customer engagement.

Like, okay, wait, as soon as they realized that fun, that Finn was working and becoming the future of the company. They decided to go all in on that.

And just recently, but they didn't fire their customers for Intercom, and people can still log into their Intercom accounts. Now, if you want to understand somebody who burns the boats, Elon said Tesla Model S and X, there's 100 left. You can buy one of the 100 to end the run. My wife bought one of the Model Xs, God bless her. You know, she had one of the— I had the, the first signature Model S, she has one of the last Model Xs. And he's like, I, those are loved cars, but they have to die so Optimus can live. And they're retooling those. Like, there are burn the boat founders. They're very rare. Most people in Elon's shoes would've been like, absolutely, we're gonna put these on a paced rollout. You can still buy your Model S. We'll incrementally improve it. They wouldn't have the boldness to say that business is nothing compared to the upside of Optimus.

So you're basically saying that Google doesn't have that agility anymore?

Only a founder can do that. It's founder authority that allows you to kill products. Um, what a company like Google does is they just let it taper off. They just let it taper, taper, taper, taper, and then someday you wake up and they're like, yeah, the Nest is the Google thermostat. Took them like 10 years to have the boldness to say, you know, Or Dropcams are now Google Cams, right? Or the Chromebook is now the Google Book. Like, it's just there's somebody internally fighting— there's, there's two camps internally fighting for each product, and then the CEO wants to be magnanimous, and, you know, she, he, they, them, it says, yeah, you know, okay, you made a great argument, so yeah, uh, let's launch that new product on this date and We'll do a, we'll do a, uh, we'll, we'll, we'll keep supporting that other product. Yeah.

I mean, I don't think you can, you can count them out though. Right. I mean, they came back with Gemini after, you know, they could have been ahead and did a phenomenal job. And I actually love that product.

So, and I made a huge bet on it. I bought Google at $100 a share when everybody said it's over and all the searches are going to Chat. 'Cause I was like, wait a second. Yeah. I watched them after Mahalo take all the little innovations we were doing at Mahalo and put them onto the Google homepage when it was 10 blue links. And I was like, like there's nothing stopping them from putting the AI answer at the top of the page. They did that with the OneBox. So what if they put the AI answer at the top? Which is exactly what they did. I'd seen them do that my whole career. They would put flight information up there, they would put their local information up there, they would put the OneBox, the sports score. What's to stop them from putting the AI answer? They did it and their revenue went up.

Yeah, very successful.

Yeah, it just took them— how long did that take them, 2 years?

Well, to make that— until they felt like they were they weren't gonna be outrun pretty quickly. They had to feel the pressure.

And then who, who actually made the decision, right?

They had a founder come back.

The founder had to come back and put down— yeah, I was gonna say that, that was founder authority.

When somebody came in and did that. Yeah, yeah.

Somebody said enough, the decision's been made, we're going AI first.

I think there's only so many Steve Jobs who can make, you know, company-changing pivots and make that work.

And Yeah, sometimes if they're no longer there, that pivot might not be as easy to pull off, which is I think why Tim Cook is retiring, is they're at a crucible moment, as Ruloff would say at Sequoia. It's like a crucible moment for, for Apple. Are they going to play a role in this next universe? Are they going to leverage their massive hardware footprint or not? I think they put a guy in charge who worked on the chips and is an engineer for a reason. Their future is local models running on massively powerful Apple Silicon with 128 gigs, 256 gigs of RAM on your laptop, and you're going to pay $4,000 for the privilege.

I hope so. All my Macs are constantly out of RAM. I wish someone would fix that bottleneck. All right, listen, before we go, Jason, I want to get to a question from the Noti Gang that was submitted before we even went live today. We're taking questions from our awesome Noti Gang group chat over on X. If you want to join, there'll be a link in the show notes. Um, but from GoldilocksVille, uh, Jason, how should I manage a meeting with large venture capital firms in New York City without losing credibility as both a newbie and someone who's still determining who to build the company with? I apparently need a co-founder. So they're looking for some general advice talking to New York.

I mean, if you somehow got a meeting without your co-founder in a very nascent company, you should just own, uh, the state of your company. Hey, it's great to meet with you, Fred Wilson. I've been reading your blog and I heard your recent podcast. I need really 3 pieces of advice from you. Here's my vision. Here's our progress. Number 1, do I need a co-founder or should I just go to building a founding team? Should I raise a friends and family round or should I go directly to seed? And, you know, we have this B2B or B2C function. I'm leaning towards B2B because that seems to be where I can get the flywheel going. And, uh, you know, uh, that, what are your thoughts on these 3 questions? If you come in and you say it the way I just said it, it. I'm owning the state of my business. I'm self-aware. I'm confident. And I have questions for you. I know that you're a wealth of knowledge. You did all of these dot-com era companies. You did Cosmo. You did, uh, you know, um, Twitter. I have specific questions for you. So you're just basically kung fu-ing it. You're saying to the person, you know, uh, here's where I'm at. Here's my problems. You might have solutions for me. Me. I want to make the most of this meeting, and I need to get this information out of your brain, which then makes the person realize, oh, this person is good at collecting information and listening. Uh, they're a sponge. If I back them, they're going to suck more information out of other people's brains, as opposed to they're an arrogant 21-year-old who's telling me like, I'm gonna miss the boat.

I miss being an arrogant 21-year-old.

That was delusional, like a little bit. That's okay.

No, life grinds that out of you slowly.

What do you say, Jenny?

You, you were nodding, I think, a I was, you know, I've actually personally changed my tune on the solo founder. So it used to be something I ran two companies, I had co-founders. I actually had a founder breakup and I know how awful that can be. But I think for the first, you know, 5 years of my investing career, I always said, you know, you need a co-founder mostly because it's a lonely road and you need a thought partner. But I have really changed my tune on that. I think solo founders that have great foundational teams and support can be great. And very successful. And so I guess my advice is I wouldn't really bring it up. You know, I would just run it as if things are going smoothly. I would talk about the momentum in the business rather than the traction, right? So you don't have to worry about that you don't have metrics, that you're super early, especially if you're talking to, you know, an early-stage investor, but just talk about all the progress that you and potentially, you know, your founding team have made. So that's how I would approach it.

All right, friends, this has been another amazing Venture Capital Roundtable. We're doing this nearly every single Wednesday. So if you want to hear from the VCs who are writing the checks, checks, come to us on Wednesdays.

Jason, this is my favorite one so far. I mean, this is the based Candid group. I like this one a lot.

Absolutely.

Uh, Jenny, thank you so much for coming. The URL is everywhere.vc. And for Dave, it's close. It's practicalvc.com. Please get together, figure out your TLDs, harmonize them. I'm going to forget those and get them all wrong.

Can we plug something before we wrap up here?

Yes, of course. Jenny, add me to your syndication.

It.

Oh yeah, for sure.

Uh, well, before I plug my other stuff, I would have said Jenny is an amazing VC and invests all over the place, and I would plug her as, you know, investing in her fund.

Thank you, Dave.

Um, but I would say for folks who are interested in learning more about secondary, Trading Places is our podcast. Every week we cover news in secondary, we do evaluation corner, profile.

Who's your co-host?

Aman Verjee, my PayPal, uh, colleague from way back.

Got it. He's good. He's a little spicy.

He's a lot smarter than I am. And he actually—

spicy. I was going for it. Okay.

Yeah.

And then a brief plug for a company we just invested in, uh, not a secondary. We invested in a company called Equitybee that provides employee option financing. Uh, you may not know this, but a ton of options go unused, unexercised because the employees can't afford to exercise their options before they leave companies. Uh, so So EquityVee helps people finance the purchase of their employee stock options so they can still keep some upside when they need to leave the company.

Tel Aviv-based?

They were, but now they're Palo Alto-based.

Got it. I remember, I think I heard this pitch. Great job.

And we're actually running an FPV.

Ooh. Ooh.

I don't know if that's still legal. But if folks are interested, Jason, I'll drop you an email.

Yeah, send me that deal memo. I'll read it.

Absolutely.

Will do.

And I'll see you at Liquidity Summit.

Oh yes, you're coming. Awesome. Great. Yeah, liquidity is going to be nuts this year. Liquidity was my original angel summit. I renamed it Liquidity, did it for a year. The All In guys did me a favor and showed up and we taped an episode there for the last 2 years. And then Chamath was like, I like this event. Can we buy it? And I was like, it's just for angel investors and early stage folks. He's like, well, what if it was for everybody? And I was like, okay. So we took the price from $5,000 a ticket and I would just break even on it. And then we doubled the price and we tripled the attendance from, you know, 150 people to 500. And we took over the town of Yonville. So the budget, the revenue, everything year over year or year over 18 months went like 10x, uh, triple. And it is going to be absolutely nuts. We said no— I think everybody who got a spot there, we said no to 3 or 4 other people who applied. This is applying to buy a $10,000 ticket. It's— it is, uh, pretty—

what a privilege.

Well, I mean, the amount of money we're spending is crazy. Like, we literally took over the town of Yonville for the entire, uh, duration. It's going to be nuts. And people are coming in from around the world. And I have like— speaking of people in the Middle East, I have people like, hey, I met you when you were over here. I run this sovereign wealth fund. I applied for a ticket. I didn't get in. Is there any way you can get me in? And I'm like, what? Ah, we need a bigger boat.

Like, I think you should have let in the people with sovereign wealth funds.

Jason, tell them to buy the next town over.

The problem is it's everybody comes at the last minute minute, and then there's like, you know, 4 besties. Each one gets 30 requests, 40 requests for last-minute tickets. 40 requests times 4 besties, 160 seats. We're out of seats. It's a physical limitation, and that little town can't handle it.

But that's so great.

This is, uh, I think next year we will have game problems.

Uh, no, absolutely.

So Jason, you know, the last time I was on a, you know, platform with you was at your Launch Festival in, um, Fort Mason, and you're a producer Jacob sent me the clip and I was like, oh my God, that was 10 years ago.

And holy cow.

Yeah. And that was such a great event. I love that venue. It was so fun.

You know, I did that event. I had started TechCrunch 50 with my friend and then we broke up, or I should say he kicked me out and screwed me. Uh, and I was like, okay, I'll just do my own.

I'll do LaunchFast.

And he went on to rename it Disrupt. Um, and it was the best thing that ever happened to me because I got away from somebody who was a bit toxic. Uh, but I was able to. To, uh, do it the way I wanted to, which was I used to do it— anybody could get a free ticket if they were a founder, they just had to fill out a form. We had 15,000 people at the peak, uh, register, and then you had 6,000, 7,000 people there. And the audience size was like— the number of seats was 2,000. We had like video rooms to watch it. So I brought it back this year, and we had Launch Festival in San Francisco, only 400 seats, free for founders. I sold like 30 tickets, uh, you know, for VCs or whatever, want to sit in the front row. And we really had a great time making it intimate again. Yeah. So I'm gonna do it again and I'm gonna do it twice a year and I'm gonna make it themed. So launch your company for free. And I had done it, Jenny, as a reaction to Demo. Demo was charging $20,000 to be on stage. They would then charge you $5,000 or $10,000 to be coached. So they had like a mandatory coaching product. And then you had to buy tickets and then you had to buy a booth. It was Do you remember those days?

I mean, I just remember being on that stage and looking in the audience and there were thousands of founders there. When I got off the stage, it wasn't like a line of 10 people. It was like hundreds of people. It was like so exciting. And that venue was just amazing.

So, well, they made it impossible for me. The unions then attacked me for using non-union spaces, started banging on the doors and protesting it because I used robotic cameras. And I was like, I'll never do an event in San Francisco again. And here I am. I did one recently, but I think I'm going to move it to like the peninsula because San Francisco is just too hard. They make it way too hard to do anything. But you were at the early ones, Dave. You were, you were, um, at everything back in the day.

You were admonishing me to, uh, take my iPad off the stage.

Yes, we had a, we had a showdown because he was using his iPad. I was like, these guys have 90 seconds, please pay attention to them.

I was doing due diligence on the company.

You have ADHD, my friend. You have ADHD. Yes. I am your Ritalin. I am your human version of Ritalin.

I think everyone here has at least ADD. I'll just throw in my historical context. I was in late high school during the TechCrunch 40, TechCrunch 50 days, Jason, and you guys got me drunk enough that I threw up on the wall outside the venue as a baby.

So there it goes. I got you drunk enough. Yes, I put the gun to your head.

It was literally him, not the people. That story wins.

You win.

You win.

Puking at TechCrunch 40. All right. All right, everybody. We'll see you next time. Bye-bye.

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