What Carta’s Data Reveals About the Future of AI Startups | Peter Walker

In 2023, AI got 25% of US funding. In 2024, AI got 37% of all global venture funding, which is really astounding.

Everyone really is building an AI these days, so it's a bit of a gold rush moment. If you are raising an AI seed round in the states, that is about an $18 million pre money valuation. So before you add in the cash, if you're raising a not AI round, it's about 13 million. And of course these AI rounds also tend to raise more money as well. 4.2 million versus 3.5 million on the actual cash raised side. So higher valuations, more cash raised. That's the AI story for right now. The percentage of VC solo founded companies is much less than the percentage of bootstrapped solo founder companies. The data pretty clearly proves that VCs don't love solo founders, or at least they're a little bit more skeptical about them than they are about co founding teams.

We're in AI, so this is an area where there has to be deep technical expertise.

But one of the biggest top topics these days is we hear about these AI companies growing incredibly quickly, but how reliable, how repeatable is the revenue that they're generating.

Welcome to the Agentic podcast where we dive deep with the pioneer AI founders reimagining business and investors betting on them. We bring you the war stories, insights and perspectives you won't hear anywhere else. I'm your host, George Van Darren, the general partner of Untapped Ventures, a VC fund that invests in early stage AI startups. Let's go. Hello and welcome everyone to our funding and equity Insights for Early Stage AI Startups event. My name is George Bandarian, I'm the general partner at Untapped Ventures. I'm joined here by Peter Walker, he's the head of insights at Carta. So we have an exciting agenda in store for you all. I'll provide a brief introduction, then we'll dive into all things equity. So we're going to start off Peter. We'll share data and insights around co founder, what he's seeing around co founder, equity splits, early employees, what kind of equity are they getting? Advisors, how to structure your advisor Equity and then ESOPs. Right, so that'll be the first section around equity and then we'll dive into the general overview of the venture funding landscape. So just to understand the broader context. And then we'll narrow the aperture and focus on AI and look at funding rounds, valuations by stage and other key trends and insights of where the AI story may be different or, or similar to what's happening in the broader context. And we're so glad you're here. Peter. How are you?

Hey, George. Yeah, happy to be here, man. Thanks for having me.

All right, did you just jump out of the pool in Palm Springs or you back in sf?

Back from. Back from Palm Springs where it's sunny and beautiful every day. Back to. Back to San Francisco, which is also gorgeous today. I don't know if probably a bunch of founders in the city, but it's been awesome.

All right, great. We had over 600 people register and many of whom I haven't had the pleasure of meeting yet. So I thought it would be a good idea to just properly introduce myself and the firm. So again, I'm George Van Darien, born and raised here in la, graduated from usc Marshall. I went on to build a company called ami, which was in the business process automation space. We help companies eliminate paper and automate their manual workflows using automation and AI. We started with computer vision and OCR back in the day and by the end of it we were deep in workflow and BPM, BPA, business process automation, business process management, RPA, robotic process automation by the time I exited in 2018. I then started angel and LP investing and doing soul searching on what I wanted to do next and how I wanted to spend the coming decades. And as a big Tony Robbins personal development guy, I got clear that what I really want to do is I want to help humanity reach our untapped human potential. Hence the name untapped Ventures for the fun. That's the origin story and for us to be able to become superhuman by today's standards, safely and ethically by fostering innovations and breakthroughs in AI. And so it's just amazing to see how the AI field has developed since I focused on that big kind of massively transformative life purpose. It was a very exciting time in AI. So I launched Fund one. We invest in early stage AI startups, so we focus on native AI startups across the stack, primarily pre seed and seed. We write 500k to million dollar checks, mainly US based startups or at least playing a US game. And we're super excited about, you know, everything happening in AI, from Magentic to vertical voice robotics, applied AI, quantum machine learning and AGI. We've made 31 investments so far. We're actively and aggressively deploying out of Fund 1 with plans to raise a larger Fund 2 later this year. In addition to being a VC, I'm a keynote speaker And I also host a podcast called Agentic for high agency AI founders and investors. So if you haven't seen that yet, I'll drop that in the chat. There's the link right there. We do a really good job, I think, on the content production and especially on the video side. So I just dropped the link in the chat. It's. You could also find it at agenticai vc and again, you could subscribe using your favorite podcast. It's on Apple Spotify. And then I really like the YouTube because, you know, we have, you know, a great video for each, for each episode. And actually one of my recent podcast episodes was a masterclass that I did on how to build an AI startup that attracts funding, customers and talent. That one was really highly. I got a lot of good feedback for that. So you might want to check out that episode. So hopefully that's helpful as something to check out later. We love to host great events like this one, both virtual and in person. We had our big Agentic and vertical AI event in SF recently. We had a VC panel which included, you know, Khosla and Gradient and Pear. And then we had a Agentic founder panel. It was a great event. So that was one of our recent events. We did something similar later in la, Same concept, you know, VC panel and founder panel. We're planning on continuing those coming up for New York Tech Week, SF Tech Week and LA Tech Week in the next few months. And when we invest, we, you know, in addition to the normal things that VCs do, we do some things that are really different. We run a mastermind group with our portfolio founders. And then we have one of our secret Sauces is our LP network. We call it the Core 100. And these are 100 entrepreneurs that have built and many times exited very, very successful businesses. And they're available to help with our founders as well. So, you know, we're having a ton of fun here. You know, my experience in my previous company, you know, over 15 years, was selling to every vertical and horizontal you could imagine. And being that most AI startups are B2B and they're selling to enterprise across all these different verticals and horizontals. And, you know, I feel like it puts me in a unique position where I could pretty easily understand what a startup is, is doing, what their market is, what their go to market should look like, how to sell to that market. And so I think it helps us assess startups and then once we invest, be high value add. And our founders love us. So that's my intro Usually we like to offer a lot of goodies and gifts at the end and in this case Peter will do that. So we're going to transition into his presentation. But if, you know, I want to drop our info. If you are an AI founder and you like what you hear and you think that we could be helpful in your journey, we'd love to hear from you. Please pitch us. If you're a fellow VC, you know we work with a lot of VCs. We'd love to co invest with you. If you have any great AI deals that you're investing in or in your portfolio, we'd love to, you know we please share with us. If you're an LP and you interested in joining our investor community, we literally only have a few slots left before we hit our max of 100 in fund one and close things out. So please email my investor relations team and we are growing and so if you're a job seeker, you're trying to break into vc. We have multiple roles open, from intern to analyst on up. Let's get to the meat of the presentation. I'd like to formally introduce our special guest, Peter Walker. As I mentioned, he runs the insights team at Carta. They're focused on making the startup and venture capital world less opaque. They have an unfair advantage and that they have all of this data about startups, startup structure, startup equity and they share that. So if you've seen these posts that I have here on the right on his LinkedIn or you know, thousands of other people reference them in their own blog posts and their in their own data. It all comes from Peter and Peter's team. In a former life, he was a marketing exec for a media analytics startup and led the data visualization team at the COVID tracking project. The good old days of COVID But with that said, why don't we dive into the presentation and Peter, let's start with equity. So given Carta has the largest platform for startups managing their equity, what insights have you and your team gathered around? How founders are dividing up equity amongst themselves, amongst co founders, their early employees, advisors and then the esop.

Yeah, it's a fascinating topic. George, thanks for, thanks for having me here. You can skip through some of this by the way. This data will be available to you if you'd like it. Afterwards you can email me, we can send it out to the group. But I think it's useful to just give a sense of where it comes from. Carta's the leading equity management platform in the world these days. We have 45,000 startups currently active on the platform. Many, many, many of those, by the way, are not paying us a dime. They can start on Carta, launch completely for free until you raise a million bucks. But we also serve the biggest US unicorns as well. But 83% of all the unicorns in the US use Carta. So let's talk about equity, which is, I think a wonderful place to start this conversation. Before we get into the way that AI is changing companies, you might want to start at the beginning. And the very beginning is of course, how many people are you starting this company with? This is probably one of the biggest decisions you're ever going to make in the company life and it comes right at the very beginning. So here's data that we had from across about 43,000 startups that use Carta. And it shows the year that they were incorporated and then how many founders they had. And there's one clear obvious pattern, which is solo founders are becoming far more common. That's great. It indicates that company creation costs are going down, it's easier to start a company on your own than it ever has been, et cetera, et cetera. However, and I'm assuming many of the folks on this call are actually going to end up trying to seek venture capital, the percentage of VC solo founded companies is much less than the percentage of bootstrap solo founded companies. So the data pretty clearly proves that VCs don't love solo founders, or at least they're a little bit more skeptical about them than they are about co founding teams. George, I don't know if you wanted to talk about whether or not you care about co founders or not. I have some ideas as to why VCs would prefer a co founder, but maybe you had any thoughts from your portfolio on that?

Yeah, I mean we're big believers in a complimentary multi technical co founder combo, right? I mean we're in AI, so this is an area where there has to be deep technical expertise. And so yeah, we typically look for two to three technical co founders, usually with master's or PhD degrees that have figured something out, something big that solves a big problem for a big market. And it's just hard for one person to take it all the way to venture scale, all the way to 100 million in ARR and onto IPO. So I agree with that.

Yeah, it's a pretty common set of objections or concerns about solo founders, but obviously the points that you had already made were really good ones. But also just the risk Factor of, hey, if this person ends up burning out or leaving, you know, if I have a co founder, there is some insurance that that company might, might still be going on. So there's a little bit of that going on as well. So let's get to the big question, which is how do you split this equity up? The lines on this chart just indicate the percentage of companies for each founding team size. So the yellow on the top, there is two founder teams that split equity equally. So for a two founder team, that's the 5050 split. So two things about this chart that are really clear. The first is founders are choosing to split equally much more often than they used to. However, it's still not the majority position. More companies choose something other than 5050 or 1/3, 1/3, 1/3rd, then choose those equal splits and there are a lot of reasons why you might choose something else. I guess the only real takeaway from this data for me is that there is no one right way to do this. Everyone has very strong opinions on Twitter and elsewhere about this topic. I'm telling you right now, it might not apply to your situation. The only wrong way to split equity is to not talk about it. Do not split 5050 because it seems easy and you want to avoid a conversation. You need to be willing to have hard convos with your co founders and equity is one of those hard conversations. And obviously there are a lot of reasons why you would split unequally. Maybe one of you is going to be CEO and has fundraising responsibilities. Maybe one of you is far more technical than the other. There's a thousand reasons. But don't avoid the conversation just because it seems easy to go with what a fair quote, unquote fair number looks like. So that brings us. So you've split equity, you found your co founders, you are starting to build this business. But there's one simple way that you can really increase the odds of you not succeeding and that is to vest, or excuse me, to have equity without a vesting schedule. So I'm sure most of you are familiar with the vesting schedule that is applied to tech employees. It's typically a four year vest with a one year cliff, meaning you have to stay for four years in order to get that full equity grant in the company. So why would a founder have to do that same thing in their own business? They're the ones starting the company. Why do they need a vesting schedule? Well, it turns out a lot of founders leave. Co founder teams break up after four years. We see about 25% of companies on Carta have lost a co founder and that's a higher percentage for the companies that didn't even make it to four years. So this is kind of the lower end of the number. Investing schedules protect you and your co founders. I know it feels odd, but if a co founder leaves after two years and they walk away with say 50% of your company, it makes you an uninvestable proposition for most venture capitalists. So if you're trying to take vc, having a vesting schedule on your equity is a must have. It's a non negotiable. How long should that vesting schedule be? Jeffrey asks in the chat. You know we, there's a lot of talk right now about extending vesting schedules from the normal four years to up to six or even eight years. We do see that some founding teams are choosing a slightly longer schedule. I would say that 80% or so are still on that four year initial vesting, but some are choosing six and a very small percentage are choosing eight at the moment. Why would that happen? You know mostly it's just because companies are staying private a lot longer than they used to. So it's kind of insurance against the idea that if you're trying for an IPO it's going to take 8, 10, 12 years these days. I'm not saying there's one right way to do that either. Four is still the most common, but we are starting to see that creep up a little bit. Okay, so advisors, you split equity with your co founders, you've gotten this business off the ground. You're trying to do some interesting cool things. What if you want to bring on some advisors to help you grow the business? So apologies to any of the advisors on the call but for some reason Advisor Equity always seems to start the request always seems to start around 1% of the business. I don't know why that seems to be the way that the conversations usually begin, but it's almost always where they start. And the data says something very different. Which is the median amount of equity granted to a pre seed Advisor is is 0.25%, not 1%. There are advisors that are worth 1% of your business. Who are those people? One, if they are bringing commercial prospects for your company, right. They're actually introducing you to real potential prospects and customers. That's one reason why you might have a higher equity grant for the advisor. 2 They're bringing technical expertise that you do not have on the team and you're building a hard tech product. That's another good reason why you might go above the median. But if this is simply someone that you're meeting on zoom a couple times a quarter, they're probably not worth 1% of your business. We hear far more founders wish they had given less equity than are excited that they should have given more to advisors. So sorry, to any advisors on the call.

Yeah, I agree with that. And even advisors have the same typically four year vesting schedule with the one year cliff just to make sure that they're doing what they promised that they would. And usually what I recommend to founders is the best advisors are already going to start helping you and so they should give you value first and then you're trying to give them equity so you continue to get more value from them. Not the other way that they're a professional advisor, they're trying to sell you on giving them equity and then they'll go do a bunch of things for you.

Completely. Right. And the other way that you can make an advisor a little bit more impactful to your business is to make them an investor. You know, if they're willing to put up even a little bit of money to be strategic angels instead of just advisors, that is a really good sign that they are long term invested in this business. So Grace, your question of what are they are introducing us to potential investors? Maybe, maybe. There's a lot of, I got to say it, like shell games that go on and hey, I gave you two intros to the VCs but it didn't work out. But you should still give me equity because I gave you the intros. It's tough. It's really tough.

Yeah, I really think it should be based on outcomes. Right, so it's.

Yeah, exactly.

Revenue outcomes, fundraising outcomes, hiring outcomes. Like it should be based on outcomes ultimately.

Totally well said. All right, so you've got some advisors, by the way, about half of the companies that we see on CARTA have advisors. So it's very, very common. Now you're going to hire employees. ESOP is the employee stock option pool. It's the set of equity that you're going to put aside for employees as you grow this business. Sometimes you hear a 20% number thrown around for option pools. I'm telling you right now, you can start it much lower than that. You can start it at 8%, 10%, something in that range. And then the x axis there is valuation. As your company gets more valuable as you fundraise, you can expand that pool over time. There's no need to over dilute yourself by setting the option pool at 20% when you are a pre seed company. And what are you actually compensating these folks? So we're about to pull this 2024 number now that we have full year of data, but I think it's going to come in right around 2023. And in 2023, the first hire at a tech startup was making about 1.5% as their full equity grant. That's not annual, that's the full four years. And so two things really stand out from this chart. To me, the first one is founders got a little bit more generous with those early employees from 22 to 23, and I think they might also do the same from 23 to 24. The second point is that this equity falls off really quickly. Hire number five versus higher number one. It's a totally different world in terms of how much equity they receive. So in my view, Convincing hires number five through 20 to join your company is really, really difficult. It's one of the toughest tests of the founder is to attract the right people to your business, even though their equity stake is much less than yours as founders and much less than their compatriots that got hired before them very recently. So it is tough. And there's no. Again, these are medians. I'm sure that these ranges are pretty wide. But that's the job of a founder, is connecting to the right talent and making them believe in your business so much that they want to ditch their big salary from a big company and come and work for you.

Yeah, I think when I look at this, I think of like, higher Number one is that non co founder, founding engineer, potentially higher number two could be that, you know, again, non co founder, you know, chief revenue officer or something along those lines. And so now you're, you know, one or two or three co founders. You got your founding engineer, you got somebody that's going to help on the sales side. You know, you get those initial missing pieces and then afterwards, you know, as long as you've made some good hires there, then. Then you kind of have the core team that could really get a lot done.

Yeah.

And you have momentum. You've probably raised a small round and you know, and then it trails off like you said.

Yeah. Greg asked a good question. There's a caveat on this chart that says under 5%. Yes. So that's typically the range where we start thinking of that person as a founder rather than an employee. But it definitely varies. There are some grants that are over 5% for that first employee, but it's pretty rare. I would say less than 10% for sure. And then in terms of who these people are, there's a couple questions in the chat about who are these first 10 hires? Six out of 10 of them are generally engineers. So it's a lot of engineering, a lot of people focused on building product at the beginning and then some are, you know, builders and sellers is still the most common people for the first 10 hires. And it's, it hasn't really changed much even in the age of AI. And we'll get into a little bit about how AI is changing teams in a second.

So maybe one of the questions in the Q and A is what is a fair equity split? If I'm the solo founder, CEO, cto and I'm building the platform and would like to find a co founder for purposes of raising VC funding.

So the first point there is the person who should be funding from asking VCs for money is the CEO. It has to be. Has to be. You cannot send another co founder to do the fundraising for you if you are the CEO. That's my first point. The second point is in that scenario, when you're bringing on a co founder maybe a little bit later in the business, have a discussion with them about what is most important. I mean, why are you giving them, say you're a year or two years into the business, why are you giving them the co founder title? Is it just because they won't join? Otherwise, would they be okay if they were a founding engineer with a pretty healthy equity package? You got to work out what this, what is motivating to this person and what is useful to your business. We do see co founders join later in the company journey, but if it's been a significant amount of time and you've made progress bringing someone in as a co founder, I wouldn't do that explicitly just so that you can have someone else do the fundraising for you?

Yeah, I couldn't agree with that anymore. I mean, I think, you know, what you say there in your question is find a co founder for the purposes of raising VC funding. So what that sounds to me like is that you don't want to do that yourself as the CEO. And so I think there's some structural issues, right, because the CEO's job is to go to do everything that's forward facing, right? It's vision and money. And so that has to be you. And if that's not you, then that means that maybe you're really looking for a co founder and CEO and you want to be the cto. If you are going to be the CEO and CTO and you just want someone to help with funding, then that's not a co founder, that's more of an advisor like we talked about earlier. One challenge a lot of my founders, I advise, have is finding co founders. Any solid ideas of what works for connecting founders. Do you have any thoughts on that, Peter?

Yeah. You know, co founders are people. Co founder matching is really tough and sometimes it feels as though, you know, you're trying to date someone honestly and you're like kind of looking for people you don't know. I think the best co founders almost always are people that you already know that have a deep curiosity about the problem that you're solving. So that's where I would check it out first. And then to be honest, is there a way that you can start building and then showing that this is an ongoing concern and like a very interesting space for the people that you might want to attract? But it is, it's tough. Finding the right co founder is definitely a challenge. So I don't think there's an easy answer to that one.

Yeah, I agree.

Yeah.

If you don't have people in your network, then, you know, you gotta go back to, you gotta start going to events, right? Go to events, meetups, hackathons, and just start meeting people. And then whoever you click with start, you know, continuing to have one on ones and take it from there.

Yep, yep.

All right, so, so that was good. That was a great. What I love about what you shared, Peter, is just so unique, right? This, that data that you shared, no one else has, that no one else is sharing, that you have all the stats. It's not, you know, conjecture, it's actual, like what people are actually doing in the system. So super helpful. So now let's transition and, and, and maybe give us an overview of what's been happening the last couple years in the venture landscape. How our fund, how is funding going, funding rounds, valuations, generally speaking, before we dive into the AI story.

Absolutely. And Andy, I saw your question in the chat around co founder equity splits between 2 and 3. Right now the median that we see for two founders is like 53, 47. And then for three, there's like a higher one for the CEO and then on down the line. But I'll post a link to some more data on that. All right. If there's one chart that explains what the heck has happened to venture capital in the last few years, it is this one. There is a year that was different from all the other years. And it is not the year that we're in now. Right. 2021 was a fever dream where we wildly funded companies. And quite honestly, we're still dealing with the hangover of that overfunding today. So if you know founders, few founder friends who were funded in 2021, it's. It felt amazing at the time. Everything was up and to the right. We were all going to make billions. It was such a beautiful moment. But we are dealing with that. There's a hangover from that overfunding, and there's a lot of decisions that have to be made because of it. So, for instance, no one, no part of venture has escaped this downturn. It's not like if you were at seed, everything's cozy, and if you're at Series D, it sucks. The downturn in terms of total capital applied to each of these series has been significant, no matter what part of the venture area you are. And so if we overvalue companies for about a year and a half with significant amounts of cash, what does that mean when that funding dries up? Well, as entrepreneurs, this is perhaps the most useful chart for you, which is in the old venture world, you used to assume that you would take on a new round of funding every 18 to 24 months. That's that blue zone in the chart. And you can see very clearly that that was actually a pretty good assumption for the last five years or so. But recently it has gotten really tricky. So it is taking longer for companies to fundraise, both in terms of the actual time of the raise itself and in this case, what the chart actually shows, which is the time between the date of your seed round and the date of your Series A, for instance, it is a lot longer than you might expect. So to put this into really specific terms, if you plan to fundraise every 24 months, that's about 730 days or so. What if you had to make that cash last for a thousand days instead? Could you do that? What would you have to do to your business in order to make that happen? A lot of founders have been faced with this decision. It's why we've seen so many layoffs. It's why we've seen some cuts in software spend. It has been really challenging, and this chart probably is giving you a bit of deja vu. It is just the inverse of the funding chart, where we basically didn't have any down rounds for a couple years there. And now we have a lot of down rounds because we overvalued companies. And a down round is of course, a round at which the valuation of the company actually declines from the prior valuation, instead of the normal thing where it keeps expanding. That is a tough moment for founders, tough moment for employees, et cetera. And then the last note, we funded a ton of companies in 2021, and VC as an asset class didn't get a lot better at picking winners. So what happens three years after you fund a ton of companies? Many of them shut down. This is not an unexpected chart, but it doesn't make it easier. It's really challenging. So I feel for all the founders that have had to go through this. But it is just kind of a natural outgrowth of that hangover moment generated by those wild times in 2021. So that was depressing. I apologize for bumming us all out on this, but there are some interesting things happening in more recent times that I think are far more optimistic. One of those, this doesn't look like an optimistic chart, but I think you can paint it that way. This is how do founders respond to an environment like the one that we're in right now? Well, the first thing that they do is they look at their teams and say, how many people do I need to build this business? And increasingly, for a lot of founders, the answer is less than I used to. So just look at that black line. That is just the number of people hired by CARTA companies every month. January 2022, 73,000 hires in a single month. January 2024, 33,000 hires in a single month. And it's going lower in recent months. So what does that mean? It means that these companies are smaller. And this is where we start thinking about the AI story. So if in 2021, the median series A. Excuse me, the average Series A company had about 21 full time equity holding employees. Today that's more like 15. And maybe next year that's more like 12. So small companies, I'm sure you've all read the headlines. Small companies moving faster is definitely the name of the game today. That stat that is thrown around all the time, ARR per employee, is much, much more common to be spoken about during funding rounds than it used to be. So it's all about how big can you get this business with a small set of teammates. All right, there's a lot of questions in the chat. I know I ripped through that pretty quickly. Seed strapping. Benjamin has a question about seed strapping and envision this, the future of seed stage raising. So for everyone, seed strapping merely means you raise A seed round, and then you try to get as far as you can without raising any more capital. Lots of companies are trying it right now. Remains to be seen how many can actually do it. I think a lot of them will be interesting, cool outcomes. But for the biggest rounds, you know, the question is, can you get to an IPO with just a seed round? I'm sure some companies will. Many companies will end up having to go back to the funding markets eventually is my, that's my instinct. All right, George, any questions on the stuff before we jump into the, the, the AI part of it?

Yeah, I'm looking at the Q and A. I think there's some kind of more general questions that we could take at the end. I'm looking at the ones that have been upvoted as far as what you just covered. I think people are starting to ask, like, specific questions about.

Yeah.

About their unique situations. But yeah, I mean, I think the, what you shared is really exciting because I think, you know, we invest in AI startups, but the AI tools are available for all startups. And I think that's kind of the story that you were sharing is that that as a food tech startup, as a SaaS startup, as any kind of non AI startup, as well as AI startups are building, the AI tools have gotten to the point where you could do a lot more with less and be able to have less employees, which reduces the burn, helps you move faster, need to raise less money, and all of those things. So I think this is a really fascinating trend and one of the kind of the beneficial aspects of maybe what we in the AI world are doing for everybody else. So that's pretty cool to see.

Yeah, I appreciate you all working on AI, making it easier for other founders to, to start and grow businesses. So I think that's fascinating. Juan, you asked the question of the reduction in team size driven by AI or funding? It's definitely both. I think if you look, for instance at this slide, the decline from 22 to 23, I think is almost entirely about founders just treating money more carefully, being capital efficient. The decline from 23 to 24, I would say is about definitely some AI story there, but also capital efficiency. If, as I expect that number continues to decline in 25, I think that is where you start to see the impact of AI automation on job sectors. For sure.

That makes sense.

Yeah.

Okay, cool. So probably now what, you know what? We all came for the AI story and let's talk about how the AI story has been different from the rest of venture the last few years, yeah.

So venture context was depressing. The AI story has been anything but. So if you just look at overall investment into Companies on Carta, 24 was a better year than 23, which is great. It wasn't a massive step forward, but hey, at least we're not falling. And a lot of that, and this is the orange in the chart is because of AI company funding. So this is the percentage, or excuse me, just the total dollar amount by stage that's going to AI versus non AI. So if you just, if you take that out and you aggregate it to a percentage, you can see that across every part of venture. AI is now a major, major industry. And in the later parts of venture, it's nearly half of all the dollars that we see invested are going to AI companies. So this is a bit of a change from what you would expect from a normal technology wave. Typically it would start at the early stage and then make its way to the late stage. It's actually everywhere already, which is tricky for early stage founders because it feels like everyone is building an AI. And normally the answer would be no, you've got some time. But in AI, it actually isn't. Everyone really is building an AI these days. So it's a bit of a gold rush moment. Let's talk about that.

And that's what I see too. I think the stats are In 2023, AI got 25% of US funding. In 2024, AI got 37%, 37% of all global venture funding, which is really astounding. I mean, more than 1 in $3 globally went to AI last year. And I think based on the early numbers that I saw in January, February, that's continuing. And so we'll see the Q1 data when that comes out in the next week or so. But we've never seen anything like this in the 50 years of venture. Right. Even when we had the Internet boom, Internet was exciting, but there was other categories. So it's really fascinating to see how much AI is dominating the venture funding market.

And of course, when you talk about venture funding to AI companies, sort of inherent in that is what is an AI company? So I bet you won't like this definition from us, but how did we on these charts figure out what was an AI company? We asked the founders, are you an AI company? Is that a good definition? No, it's not. Is that what investors by the data also seem to be doing? Yes, it is. And the problem here is that there are a lot of different kinds of AI companies And everyone will have a different definition about what is defensible and what is not defensible. So some VCs might say, if you're not building a foundational model, I don't want to talk to you. Some VCs might say, if you're not fine tuning a foundational model with your own proprietary data, I don't want to talk to you. And some might say, as long as you're automating a workflow that is annoying to and using AI to do it, then of course we think it's a great business. All investors treat this differently. I have not found one unifying definition that everyone agrees to. So AI is a tricky word because it is the hype cycle, so everyone is using it, but it also means different things to different people. I don't know, George, if you have a clear definition of what you all consider AI companies these days.

Yeah, I mean, so from, from our standpoint, you know, you have the, the AI tech stack, right? So you have anything at the compute layer, we made investments in AI chips and the infrastructure to manage AI compute. Then you have the, on top of that in the stack, you have the models themselves, the LLMs. Then on top of that you have the infrastructure, AI infrastructure software. And then you have the application layer have agentic AI. You have, you know, clear kind of AI use cases. So to us, native AI is pretty clear. But anytime, the only one that becomes a little more questionable is at the application layer. And for us, the easy question is, you know, if we took the AI out of your business, does your value prop hold firm or does it fall apart? If it holds firm, then you're not an AI company, right? That means you're really a SaaS. Maybe you're using an AI chatbot on the side for some customer support or some, some minimal tasks, but really what you've built as a SaaS or some other, you know, value prop. But if we take the AI out of your startup and your whole startup falls apart, then that means it's native AI. It's the AI that's delivering the magic, the value. So that's how we look at AI startups and defining native AI.

I love it. And that's a fantastic definition. And that obviously is, you know, a sophisticated investor's view. And then when I talk to other investors, they think totally differently. And it's, it's just a funny time because no one has great data yet on what is truly defensible. So one of the biggest topics these days is, you know, we hear about These AI companies growing incredibly quickly, but how reliable, how repeatable is the revenue that they're generating? I think we're starting to see signs that it's actually more, maybe a little bit more repeatable than people have initially thought. But that question is still, I would say, unanswered for many, many companies. But as for the valuations, so you are a young founder going out to raise your seed round. If you are raising an AI seed round in the states, that is about an $18 million pre money valuation. So before you add in the cash, if you're raising a not AI round, it's about 13 million. That is a big difference. And of course, these AI rounds also tend to raise more money as well. 4.2 million versus 3.5 million on the, on the actual cash raised side. So higher valuations, more cash raised. That's the AI story for right now. And I could show this same chart for series A, series B, series C. It looks effectively the same. The orange line is always above the black one. And There is a 30 to 50% delta in valuation and in cash raised on most of these AI rounds. So, yes, it is a good time to be an AI founder. There is capital being deployed into these businesses. But of course, as with any hype cycle, many, many, many more companies these days, I'd be shocked. Well, certainly George maybe doesn't get this, but I'd be shocked if most investors don't read the word AI in almost every single deck they see. So it's not quite the panacea that it used to be. It doesn't just get you that check, it just maybe allows the conversation to continue. Series B, same idea. And you're probably thinking to yourself, all right, so AI companies are in hot demand. What does that mean in terms of how much they need to sell in order to make these rounds happen? So typically when we give advice to venture founders, it's that you should expect to sell about 20% of your company in a seed round and 20% of your company in a series A round. 20 and 20. Very standard. And actually the data from last year shows that the AI companies are selling just about that much as well. So the valuations are higher, but the dilution is basically on the same as you go through the funding round, Series B, series C and beyond. You do see that AI companies sometimes sell a little bit less of their companies than the non AI founders. That's probably due to them having multiple term sheets, a little bit more competitive, et cetera. But in general, there isn't A giant change in dilution just because you're building an AI. And we talk about AI, we talk about OpenAI and anthropic and all those foundational model companies, we talk about the app layer, but AI is absolutely everywhere. The orange bars in this chart is the percentage of cash that goes to AI. The black bar is the percentage of deals. And it's in SaaS, it's in health tech, it's in gaming. There are web three crypto AI companies. There are obviously robotics and hardware AI companies. Every part of venture, every sector is getting AI, is seeping into those places. In fact, I think honestly, in about a year or so, I'm not even going to show charts about AI. I'm just going to assume that people are using the latest and greatest technology and we'll just get back to talking about startup sectors as a whole. But for now, it's just infiltrating every part of venture. And when you look at the breakout from these bubbles, so each one of these bubbles is a sector, and then the further along to the X axis it is, the higher the valuation for seed stage and the higher it is on the Y axis, the more cash it raised in a round. You can see that again, that floats. It floats along a pretty linear line there, which means that about 20% is sold, no matter what industry you're in. You can see physical AI companies and digital AI companies in the orange. And then you can see some sectors that are a little bit out of favor with VCs on the left, maybe a slightly more in favor with VCs on the right. But the overall point is AI is everywhere. You're probably going to run into founders that are building it in all sorts of different verticals. And where is that AI funding? So if Silicon Valley is the traditional home of startups, then it is even more the home of AI startups, at least in our data set. About half of every dollar that went to an AI company went to a company in the Bay Area, and that was higher the further on you get. And yes, Series D, Series E, you're talking about some really big rounds from companies that you already know. But in general, AI has taken root in the Bay, I think a little faster than it has elsewhere. But there are still a lot of AI companies being built outside the Bay as well. It's just that's, that's the home of, of AI at the moment. I know we've ripped through these slides. I wanted to save a little bit of time at the end for questions. Seems like we Got, yeah, a number of questions in the chat.

No, that's, that, that's perfect. And somebody was asking and I was wondering too. So all, all your slides, Peter, start at price seed. Do you have anything on precede? Because I know that's really interesting to kind of ideation formation, early stage founders.

Yeah, we have a lot on pre seed. If you just, if you Google Carta pre seed, we, there's full reports on it. Right now what we're seeing is that the precede difference in AI, you know, precede on safes. So it's talking about valuation caps rather than actual valuations. And the weird thing about valuation caps is that they're not specific, they're just like round numbers almost all the time. So it's 10 million or 12 million, etc. We see, we do see about 20% gap between the median non AI and median AI company raising on safes for their pre seed. But it's, it's kind of a messier data set. To give you a sense of it. If you're raising $1 million on a pre seed round right now, the median valuation cap we see in the states is $10 million. So $1 million raised, 10 million post money cap means you sold about 10% of your business. It's a little bit, the cap is a little bit higher for AI companies, but not drastically higher.

Okay, cool. And so we're going to go to the questions now. Peter, was there any gift you wanted to offer the audience?

Yeah, I guess. You know what, there's two more. I think we can skip this slide.

I thought you were done. No, go ahead.

No, this is the last one and I wanted to focus on. So getting back to you as founders, when you are fundraising, you're thinking about dilution to your business. How much of this company am I going to own over time? So we took a look at. This is not just AI companies, but this is companies that have raised the round in the, say past five years or so. On Carta, we just broke it out into the key groups. You've got founding team in orange, employees in the pink. Dark gray is investors in that round and light gray is investors that were already on the cap table. As you go through this, founders obviously sell equity in return for cash and so their ownership percentage decreases. You can see that around series C or D, actually the employees have more allocated equity than the founders. Of course there are probably many hundreds of employees at that point. So on an individual basis it's not even close. But you get the idea between those two Groups. And the big question, the one I always get from founders is when can my VCs fire me? Typically the answer in venture is between Series A and Series B. That's when control passes from founders to investors as a group. Of course, the vast majority of VCs, no matter what you hear about them, are not excited to hire founders. They're investing in your companies because you are there. So it happens rarely and when it does, it's a big blow up. But that is generally a control conversation that happens around the Series B or so. And I did see a question there in the chart in the, in the chat around what stage is it common for founders to sell their own equity to do a secondary sale of their own equity? This is a tricky subject. People have very strong opinions about what is okay here. We do see some founders take money off the table as early as Series B or so. That's not a high percentage of companies. It's really only the highest demand companies. So it's tricky. It does happen. Late stage, we see some more founder secondaries, but in general you want yourselves and the VCs long term aligned in the business. Everything you read about AI is true. Bigger rounds, faster paces, higher valuations, all true for AI companies. They're maintaining AI, founders are maintaining a little bit more ownership in those rounds. And then of course, as George made clear with his wonderful definition of AI, it's not enough to just put the word AI into your deck and expect everyone to fawn over you. Investors have gotten a lot more discerning about what they care about with AI companies these days. So you got to come correct with a great pitch even if you're building an AI.

That was great. Thank you so much, Peter. All right, so did you have some goodies to share with our audience?

Absolutely. So in terms of this data, you can send, I can send you this deck afterwards or you can just type in Carta co founder ownership and the report is available to you. And if you're thinking about building a VC backed business and you've raised less than a million dollars so far, scan that QR code on the right. Join our launch program. It is all of our cap table features, including fundraising on safes, investor data rooms, employee equity modules, everything that you get totally for free until you raise a million bucks. So we think it's awesome. If you're already on Carta, by the way, and you're raising a price round, this is a new program that we're just kicking off. We want to see if we can save you some money on legal fees. So if you're already on Carta and you're thinking, hey, I'm going to raise a price to Series A pretty soon, scan that right hand QR code and talk to us. We have this cool new tech that we think can help you save some legal fees in that process and that's totally for free as well.

Awesome. And I just want to take a moment to do the same in terms of if not everybody was here, I want to drop our links as well. So again, if you're an AI founder, you enjoy this, you're raising your round, would love to hear from you. Everything on our end starts with our pitch form. So that's through Typeform. It gets the deal into our CRM and then we could review it and get back to you. If you're a vc, would love to co invest with you. If you're an lp, talk to us sooner than later. And if you're looking to join the exciting stuff that we're doing, we do have some internships and other positions available. I think Shant just dropped it. I'm going to drop it myself one more time. And so with that we have a few minutes left for questions, so why don't we prioritize the ones that have the most upvotes. So I see an anonymous attendee question. What milestones are you looking for to do a standard 3 million dollar fundraise at a 15 to 20 million dollar valuation like the ones kind of Peter talked about assuming tier one founding team with best schools and AI experience, that's a big deal. So that's awesome. We're deciding to raise 1 to 3 million but not sure what VCs expect at different amounts. Yeah. So you know, I could probably take this one. From my perspective, I'm assuming you're talking about application layer. Right. Because if you're at the deeper levels of the stack, if your application or AI infrastructure, then it's you're really software like SaaS. So it's SaaS like expectations in terms of customer validation and traction. Yesterday we met with a great founding team, couple PhDs, prior exits, they've figured out something, I won't go into the details. They have four paying enterprise customers for about a million and a half of ARR. So they've sold some, you know, pretty big accounts with their first four, so pretty good validation there to raise exactly what you're talking about. $3 million on 15 million post. Now if, if your ticket size isn't that large, then you know the expectation would be that you have more design partners. So you might only have 100 or 300k of ARR, but maybe you have, you know, 10 to 20 paying and non paying design partners. Right. So there's enough people that you validated that this is a big problem. People want to solve it, they want to solve it with you, they're willing to pay you and they're happy. So at the application and kind of infrastructure software layer, that's, that's typically what we would be looking at. I don't know if you had anything to add to that, Peter.

No, I think that's definitely a great benchmark. And just so everyone knows, these things change really quickly. Founders in 21 and 22 were thinking, hey, if I have a million dollars in ARR, I can go to my Series A. And I'm telling you right now, that's just not enough anymore. And it's this constant balance between your actual ARR that you have currently and then the growth rate is obviously clearly important. And those two things are not independent of one each other. They like, they affect one each other very deeply. So I know it's struggling or it's annoying sometimes when people not like George, George just answered that really clearly. But some VCs will be very cagey on what they're looking for in terms of traction. I promise. Some of them might be ignoring you for bad reasons, but many are just trying to tell you, hey, there's not a number, there's not a set number that is just going to get you in the door. It doesn't really work like that. Yeah, so Scott has one about, you know, dollars versus rounds, which is when we talk about venture, it's very easy to get fixated on these really big dollar amounts because OpenAI is raising $6 billion or something. And how does that affect the general tenor around startups? It's definitely true that more capital has been concentrated in the biggest rounds than has been traditionally the case in venture. But if you think about it, you probably weren't going to spend those $6 billion on seed stage companies anyways. It's not as though that capital is necessarily available to early stage founders. So yes, there are fewer deals in some ways, but the AI deals have been increasing quarter over quarter, year over year. So I do think that AI just kind of lives in a different place at the moment.

All right, so with that said, Peter, thank you so much. This was so valuable and I'm sure everybody appreciated it. I see that in the chat and thank you everybody for attending. Hope you got some value. Would love to hear from you. And with that said, have a great day. Thank you.

Bye.

Bye.

Appreciate you all.