LIVE: State of the Early-Stage Venture Market with Chemistry Ventures Ethan Kurzweil + Jason Lemkin

In the midst of tariff drama, um, seesaws in the public markets, and more, we've got a great one today. Uh, we've got Ethan Kurzweil, who, uh, is one of the OG, uh, great investors in B2B and B2D to developers and B2B. He has done all of it. He spent, uh, I think a decade and a half at Bessemer, uh, working with, you know, doing— working on some of the best deals from PagerDuty to Intercom, to SendGrid and lots of others. He'll introduce himself. He's seen it all. And then after an incredible run, he— Christina Shen, who also used to work at Bessemer and then Andreessen, and she'll be at SaaStr Annual in May with the CRO of ServiceTitan. So everyone come in May, that will be great. And then another one of the great partners in B2B at Index decided they'd do their own venture fund. And so they've raised $350 million to just do series Series A. So Ethan's gonna give you— he would always be honest before his own fund, but now he's gonna give you the direct insight, what's really going on in Series A in the venture market. I wanna learn. I'm seeing lots of things. And, and maybe most importantly, I think a lot of founders I talk to in B2B are kind of misreading the markets. He'll get into it. I'll let him introduce himself. There's so much money going into venture today, but so much is being absorbed by massive AI deals, right? Andreessen Horowitz just announced they're raising a $20 billion fund just to do late late-stage AI deals, but like OpenAI on its own, I think absorbed half of what we call venture capital, right, in the last 90 days. So it's a weird world where these growth rounds and AI is absorbing mass amounts of capital. But I think in a lot of cases in B2B, it's harder to raise a fund around even than 12 months ago, even though many things are going well. So I want to learn from one of the best. We'll hand it over to Ethan. Feel free to bring your questions in the chat and otherwise. We'll dig into questions with whatever time's left, and I'll probably grab a few as Ethan goes into his pulse of Series A today, because he's writing $8 to $10, $12 million checks. So that's in the sweet spot of folks who have raised a seed and are thinking next. So Ethan, thanks for joining us.

Thanks, Jason. Great to be here. Thanks for the crew that's joined us. This is exciting for me to get to be unvarnished and kind of give, tell, you know, all the all the tricks and secrets of early-stage investing that maybe I'll learn once I hit my 20th year. But this is my 17th year being a venture capitalist. As Jason said, I spent 16 years leading investments for Bessemer Venture Partners, which is like sort of a great grounding for me. And it gave me a kind of thesis around how venture capital should be done that we're playing out in practice with Starting Chemistry. And so I'll talk a little bit about that first. I started my career as a consumer investor actually, and then quickly pivoted into B2D investing and B2B investing and kind of did both those things in parallel. So Jason gave a little bit about my background. Let me talk quickly about Chemistry and why I started a new firm. Jason mentioned my partners, Mark Goldberg from Index, Christina, who I'd worked with for 8 years before she went to Andreessen Horowitz. And we felt like the time was right for a focused early-stage fund that investing as we'd love to do it and as we'd grown up doing it had changed at a bigger firm where you had a number of competing priorities and that the best way to be a really exceptional early-stage investor is to just focus on early-stage investing. Just like we tell startups, focus on your core product and your core problem. We felt like we weren't living that anymore for ourselves by, you know, running kind of multi-stage, multi-asset class institutions. And then we wanted to get back to the more hands-on work of early-stage investing. And it just so happened that we had 3 of us that all had this kind of same feeling around what happens when you focus. There's kind of like 3 primitives involved in chemistry: focus, alignment with our entrepreneurs, and a team that's all in on every investment that we make. And it was harder to do that as bigger institution, as part of bigger institutions, much easier to do that as a startup fund. As daunting as that sounded to us at the time, but we, we started chipping away at it and finally realized we could go, we could go do this startup thing ourselves after working with startups for for a collective 35 years. And so we look at seed and Series A investing, a little bit of Series B. Our check size, as Jason said, ranges from $3 to $30 million, but with an average around $10 to $12 million in there, kind of your typical Series A. And thematically, we're a generalist firm with various focuses that we each bring to the firm, from fintech to B2D, developer platforms, which is one of my core areas, consumer application software, vertical AI, and all of those various things. And so it's been exciting to be back in this new formulation. And so I thought I'd just talk a little about the state of the early-stage venture market. Bring your questions if there's anything I can address, happy to detour for that. But we thought we'd talk a little bit about how things are going now that all we do is early stage, and that's what we live and breathe every day. What's the state of that? But before we get there, Whoops. Before we get to that, we thought we'd say a quick word on what's going on in the broader context with tariffs and the trade war that started. Obviously, the stock market's down quite a bit. It's at the lowest level since 2023. It's actually a drop that's not as great as some previous crises. I started my venture career in 2008, and we saw almost a 60% drawdown in the NASDAQ after Lehman collapsed as part of that. And so a 17%, which is I think what we're at currently, if you look at, you know, kind of S&P high to this low, is not a huge anomaly in the context of, you know, kind of broader shocks. And if you think about early-stage investing in startups, you obviously have a very long time horizon. And so, I, what we've been kind of racking our brains for how to adapt to this particular moment in this particular environment. And unless you're, I think, tethered to something, you know, kind of e-commerce or cross-border, it has a sort of cross-border component to it. I think the impacts are going to be muted, you know, because we're thinking about sort of 5 to 10 years out or bringing a product to market, you know, 1 to 2 years into the future. I'm not sure this particular moment is going to have a huge impact. Other than it might make funding tighter and it might further delay liquidity window in terms of IPOs and M&A. Again, if you're a startup starting out, I think you can kind of take advantage of that, kind of run your plan, run your playbook, because you're not looking at the M&A markets and looking to go public right away. Obviously, some later-stage companies, there's going to be impacts, growth rounds will be impacted. But at the earliest stages, I'm not sure we'll see what we do tremendous impact. And for chemistry, it's business as usual in terms of, you know, we have a term sheet out now and we're talking to others and, you know, there's no immediate reaction to this. So maybe let's talk about kind of the state of early stage and go into more of the germane topic and start with kind of the seed, you know, the seed to Series A ecosystem. And there is, as has been pointed out, a decline in deal activity there from the highs that we saw in 2021, which was obviously a crazy frothy period for all particular parts of the capital stack. Seed kind of peaking up to $3.5 billion raised in the sort of fourth— was that like the fourth quarter of 2021? Series A saw the most. Deal activity there. And so it's pretty pronounced down, you know, downswing, but more back to kind of the baseline levels leading up to the ZIRP era. But it is down even from those eras. And what we've seen also, this is, this at the top, you see the line is the amount of capital going into companies. At the bottom, you see the number of deals. And if you do the division of those two, sort of like average amount per deal, that's going to be down pretty significantly from even like, you know, 2018, 2019. Because what's happening is sort of this more binary nature of the funding markets where more money is going into less deals, or, or sorry, about the same amount of money as pre-ZIRP era is going into less deals. So on an average basis, you know, the companies that are getting funded are raising a little more, but less companies overall getting funded at the Series A.

And there's more startups, I think, is sometimes what's missed in these numbers, right? If the number of startups was flat since 2018, But there's more startups.

Exactly. So it'll feel like a bit of a crunch. Yeah. Well, you'll feel two impacts of that. One is like companies are waiting a little bit longer to raise a Series A, and there's more opportunities for seed funding as well. So part of this trend may be okay, maybe sort of status quo fine, and that you're taking money from some different types of seed investors before you reach the sort of Series A milestone where where, you know, a firm like Chemistry tends to get involved, although we do see too. So there's a longer wait, but then also less companies getting funded. So this shows sort of like, you know, priced seed to Series A, the time horizon kind of shifting from a year to 2 years. So that's doubling. That's going to be a pretty significant impact that's felt. That's the sort of left chart. And it's happening across the board too. Again, I think some of it is muted by the fact that the rounds are bigger. And so you don't need to raise as often if the round sizes are bigger than they were kind of pre-Zurp era. But it is also taking longer to hit the milestones that our investors at all stages are looking for, at Series A, at Series B, and Series C. And that's kind of what this shows here.

Let me ask you a question on that prior one. No need to flip back, but this one, you know, people give lots of advice on Twitter and X and LinkedIn. but how to implement it's a different question. So the prior chart and averages are misleading in startups because no one's trying to invest in the average startup, right? Having said that, the data says it's 2 years between rounds, right? How practically, what does that mean for how much you should raise in a seed? Does that really mean you should just do 3 seeds like on SAFEs, which is maybe the real answer? Does it mean you should raise 3 years of money, which is inconsistent with any VC's business model? Like, The thing is, 25 months is a weird amount of time because no VC funds you for— because you need a buffer. So no VC really funds you for 25 plus 6. I don't think a lot of VCs are writing 31-month checks, are they?

Not, not intentionally.

Not intentionally.

Although, although, yeah, as it happens, that probably is what a big proportion end up being. Um, so it's a good question. So here's my advice for this particular phase. So I do think most startups are going to do multiple seeds, you know, one or two, you know, two seeds is more like the average than the outlier these days, or a pre-seed and a seed or a seed and a seed plus. But my advice to companies is have a plan and an accelerator plan. And when you feel like you can get on the accelerator plan, then it makes sense to sort of ramp burn and kind of go off. Go, you know, kind of jump off the bridge a little bit such that you kind of need a Series A or at least more funding to go and make sure you have a pretty concrete sense of what accelerated metrics you can hit in doing that. But have a base plan that allows you to survive for those 3 years and take enough money if it's available to you to be able to run that plan so that you're only sort of like hitting the gas accelerator when you like have, you know, whatever, 80% or greater confidence that you can show a return on that such that you'll get a get a Series A done. We're going to talk about the rest of this is actually about like what it takes to get a Series A done. So, but you, it does require you to jump kind of believing you will get there.

Yeah.

And I think once you have 80% confidence in that, you should go for it. And you know, 20% of all cases you won't. And that's, that's a trade-off that's worth going for.

And then before we get to the bar, just one last thing that's under discussed. Now that you're writing Series HX, Honestly, do you in today's world, if at the Series A they're hitting the metrics, the growth metrics, the other metrics you're going to hit to do the round, do you really care if they did 4 rounds of safes or 18 rounds? I mean, at the end of the day, do you actually care?

It's lumped together.

You don't care, right?

All gets lumped together in one line in the cap table. I mean, usually there's obviously lots of ways to do it, but it's usually all the seeds convert into— sometimes they even convert into Series A, so it's not even a separate line at all. Nobody cares. Nobody will remember.

There's no signal here. There's no negative signal to raising. There may be a lot of little dilution. But there's no, there's no negative signal to 11 rounds of safes if you're a rocket ship when you raise the A, right?

You might have to sell more of your company, like you said. But, but I, I mean, I, I mean, I, I'm, I'm not a, I'm a founder of a different kind of thing than, than a, a startup. But like, I would think like if you have the opportunity to go for it, put yourself in the best position to do that. And if that does involve a couple different seed rounds, do it. Even if you have to sell more of your company because you have that opportunity to go for it. Yeah, make sure you have the confidence level. But no, nobody looks back and docks you for more. In fact, it's like, I think about it like, you know, before you go to college or before you go to high school, your transcript doesn't matter. You know, I have a kid in middle school and it's like, okay, now it counts. Before it didn't count. It's like before Series A, it kind of didn't count a little bit. It's a little bit of the analogy there. Once you are Series A funding, then it kind of does matter a little more. I mean, there's ways to extend that even too, but it's a little more penalizing and then people are going to look, oh, you Series A funded 5 years ago, what did you do with that money? You know, kind of thing. Whereas on the seed, those questions don't get asked as much. Well, okay, let's, let's keep going. So we were talking about lots of companies being stuck at the seed, which is, you know, we're going to talk about sort of how to get unstuck or what we look for to get unstuck. And it's across all industries, right? This is sort of all the industries we invest in. We don't invest in biotech, but all the others. There's obviously a much less percentage of companies are making that graduation. Now, again, some of that is companies living with their seed money and actually getting to great outcomes on that, which is not a failure, right? That's fine. But some of it, I think people feel the pinch and feel the squeeze of not getting to that next milestone. And here's why. If you look at the uptick that happened from the Zirk era, You know, so, so figure sort of 2020, 2021 in the middle of that graph. And this is just the number of rounds, but it's like correlates the number of companies. The seed count went up more than anything else, you know, proportionally and by number went up from whatever. If you look at the 2018 line and it's 900, went up to 2,000, that's another 1,100 companies that got funded relative to baseline. And that's, you know, you know, 2, 3 times. No, sorry, that's way more than— yeah, 2-3 times the number of companies that would have been funded. More companies got funded at A and B too, but like a much lower number, even proportionally. Those upticks are more muted. And so a surge in Series A investments hit a much more stable, methodical Series A market, even though that went up a little bit. And then of course we had the 2023 era, where people I think were digesting too many investments that they just made. And so the numbers in absolute terms went down. Now I think 2025 will go, will go back up, but not to that 500 number that you see here represented for 2021. So you're still having, you know, too many companies kind of meeting a more stable market. And people talk about the Series A crunch. These are some tweets from last year where, you know, perfectly companies with like very good, perfectly reasonable metrics, having trouble getting funding. And of course, there's this feeling that like certain rounds are very hot and have no trouble at all and have 19 term sheets. So why is that happening? And some of these other companies, companies are, you know, are not able to hit those milestones. So, so let's dig into that. So, so Jason asked me the prompt that I figured I'd start with, which is like, what is actually getting funded these days? And obviously a lot of that is AI and ML, you know, AI type companies, companies that have an AI primitive as part of it. Being the bright spot. Now, actually, that's a little bit misleading because I think every company is fashioning itself as an AI company in some way. And so it's a little more nuanced than just saying AI is getting funded, everything else is not. Although I think from the outside in that that sort of is how it looks to folks. Certainly companies that take advantage of the latest technical trends or are part of enabling them, of which, you know, large language models, generative AI are as massive as you can— a massive a technical transformative technical trend as you can have are going to do better in this era. And that's why you see the, you know, the deal counts and the absolute numbers for 2024 as high. Well, maybe not quite as high as 2021, but by, and maybe not quite as much by dollar as 2021, but like pretty, pretty close, like almost right back up there. And that's of course, you know, all the foundational models enabling a whole bunch of innovation. And so digging in a little bit broader, this is sort of my translation of what I think is getting funded these days. And it's a little more nuanced than just saying AI. I think it hits maybe at least 2 or 3 of the 4, you know, first bullets on this page. And then you're seeing kind of a deal chase mentality happening with investors. Momentum's super strong and it's clear it'll continue. So it's not just like sort of, you know, a lot of the companies that come through accelerators, you see like, you know, momentum during that period. It's like this is sort of feels like sustainable momentum. It feels like, you know, there's something real here that's just going to like propel this company forward. It hits a forward-looking theme. Now that's directly kind of in the AI realm and customers are buying. Because there's a lot of companies you hear that hit the theme, but they haven't quite found a way to productize it or sell it yet. Those deals are tough, even though they're AI deals. And then finally, and this is the most important one for me, is like you hear raving customer reviews and current customers are buying more, more and more. And so you hear customers just in love with it, and then you can see it in the data that, you know, your earliest customers are buying more and more, you know, assuming they're they're good fits for your ICP. And of course, you know, founder has a unique compelling vision is always, will get investors excited and they can really articulate it well and kind of captivate the audience with their view of how the world's going to evolve in some way. And so it hits the theme of the moment and it solves a problem and you have willingness to pay. That's like the goal that those deals are like, you know, very, very in demand right now. But I think even one or two of these is enough to catalyze a pretty good round with a clear articulation of vision by a founder and a good description of why they're raising money and what the— and more importantly, what the money is going to be used for. So before we get to that, one other question that Jason M. Lemkin asked me to address is, you know, why are— is there a premium for AI? Why are certain rounds hotter than others? I think we, to some degree, kind of talked about that second question already, but the first question about the AI premium. So this is data I had ChatGPT pull using Deep Research because I hadn't actually done this analysis before, but I sort of assumed it would. I kind of guessed how it would come out. And if you trust the data source, I did dig into the actual data sources that ChatGPT used. So, but if you trust those, and they all seemed credible and legitimate. There is an accelerating premium for AI, which is kind of interesting as you get deeper into the company life, starting with like, oh, okay, a 20% premium for, for seed, kind of escalating to a 60% premium in the Series B. I think that makes sense if you go back to the, to the, to the bullets I used earlier, these ones, because by the Series B, you have raving customers, you have net account expansion, and you have momentum. And so it's not just an AI premium, it's probably an AI, it's probably a premium for those factors also. That's kind of embedded in that. But it is interesting that the AI deals are actually kind of like playing out more, or at least perceived to be by the time they get to the Series B and perceived to be by whoever's making those investment calls at the Series B. And then if you look at average deal sizes, so the left is valuations, the right is average deal sizes. You see just a tremendous difference. I discount the data a little bit because I think embedded in there are a lot of just humongous funding rounds for like a couple companies, but it is an average. And so that's going to pull up the average. But in every gradation here, the bigger rounds are for companies that have this sort of tag of AI. And again, what I always caution folks is It's not AI for AI's sake that I feel like should be, I mean, should be the most in-demand companies. It really should be companies where you put the AI to use for a discrete business or consumer problem. You've articulated how the particular, you know, the way you've built your product is going to solve uniquely that consumer or business problem. And then ultimately you can demonstrate it. You know, at the Series A, we look for a little bit of demonstration of that in terms of customers saying, yeah, this works. Like we're using this and it, And it completely works. So that's my best attempt to answer Jason's kind of prompt coming into this about an AI premium and what's hot and what's not. But it does feel, I imagine to folks a little like this, it feels this way to me sometimes too, that the market's becoming more binary. And what I mean by that is just, you know, why are certain companies have no shortage of investor interest and others have trouble getting the attention of investors? I'll say for our standpoint at Chemistry, We actually have a term sheet out now to a not AI company that's like, there's no like big kind of enabling moment for it around AI that we think is super incredible company that's kind of demonstrated amazing, you know, things in its market. And we, we tend to go back to first principles when we look at potential partnerships with, with entrepreneurs and founders and like, is there a business problem to be solved or is this company solving it? Is it unique? Does it have a ton of competition or is it Or has it done something that like other people have not achieved? And do they have raving customer love, especially in developer platforms companies where I invest? The raving developer love is something I would never trade off. So I'm, I, I, despite what the data shows, we're open for business on all, on all fronts.

Yeah. You know, it's crazy. So different this cold. I mean, I almost don't want to talk about 2021 again, because it was so long ago. You know, it was like a generation ago talking about. Zurp and then talking about Web 1.0. But to the extent we're still thinking about the— when I look back on what happened in VC funding in 2021, just everything in SaaS was hot. Okay, it's not hot today. And what would happen— it was so weird. And actually public multiples were so high. The average public SaaS company was growing 70% in 2021. Now they're growing 11%. Okay, so there was some justification. That was so crazy that what would happen is if you were— and I want to talk about triple, triple, double, double before we run out of time. If you were triple, triple, double, double or better during, during late 2020, '21, literally top-tier B2B VCs would fund you without a meeting.

Literally.

I can tell folks that you worked with, okay, that had data, but they would have the data. So imagine there was a SaaS company at $23 million in ARR growing 114% in a good category. You could literally look at the public comp trading at 70x and give them an offer at like 30x and you would think it was a good deal because everything worked in SaaS in 2021, right? Everything worked. And literally you would talk to SaaS VCs and they would tell you the month their company would turn into a unicorn, even though it was like just regular. And so that's not true today, right? Literally everything would get funded that was better than triple, triple, double, double because the public markets rewarded it, right? You couldn't lose. You couldn't lose, right?

I saw some, um, updates during that period where people would project their future valuation just based on, you know, the way the market was evolving.

And they were right for a while.

And actually, they were right.

They were right. How can you know?

I mean, maybe, maybe like the quarter will be bad. And they're like, no, no, this is, it's just so predictable now. And yeah. And to Jason M.

Lemkin, that was a sign, but they weren't.

And when, you know, the market changed and people got a lot more discerning about what they bought. And, and, and so, So that's obviously all baked into this. I think you're right to sort of like lop off the parts of the chart that are like 2020 to the beginning of 2022, because it's just so anomalous relative to how hard it generally is to have startups achieve those kinds of growth rates. So, I mean, that's just not every day that you see that. So maybe Jason, tell me if you want to address anything before, but I was going to then move into the product.

Just the one point, I think we get it, but just to frame folks that have read this, if you had to summarize everything you're seeing for— is triple, triple, double, double, which was the— which, let's be honest, let's get out of the VC mindset. That's hard as it is. Triple, triple, double, double requires enormous market pull, doesn't it? If outside of consumer and B2B, it takes— there's sales cycles, there's awareness, there is compo— like triple, triple, double-double is so hard in the real world, right? But that was kind of our gold standard for a decade in B2B. Is it good enough today in the AI world? Is triple-triple-double-double good enough?

That's a really good question. And I think in some cases it's not, is the reality. Um, it, I think it's, it's enough to, um, probably get funded at some level and be healthy. And if you're— but if your market is fast moving and has a lot of competition, then I think what the dollars that are sort of kind of, you know, the purple charts here that are kind of piling into stuff are looking for these crazy outlier type companies where they're 5xing or things like that.

Yeah.

When I look at sort of like developer platforms markets, triple, triple, double, triple, triple, double, double is enough usually because I'm looking at kind of like a discrete area where you can kind of improve the status quo and it may not be in the froth of the market. But if there's a risk of getting disrupted, I think you do have to sort of like risk-return, you have to sort of compensate for that. And folks in the, who are looking for the sort of like craziest of AI stories are looking for more than the triple, triple, double, double.

They're looking for more, right?

Yeah.

They don't even want, those guys don't even want to take the meeting today, I don't think.

Yeah, hard for me to say because it's like I'm out of the world of that. But, but that may be that. I'm sure it feels that way. And I'm sure there's probably getting the meeting with the— with getting the meeting that you want is probably a lot harder if you're just a triple, triple, double, double. Now, sometimes now what we look for in chemistry, and maybe this is a good kind of small detour, but take me off it if it's not interesting, is like, can we accelerate this company? With, you know, with capital and help and resources and stuff like that. And so it's maybe even less than a triple, triple, double, double. But it's like, but the market demand is very clear. And so it's like, yeah, it would be faster, but for, you know, whatever the resources needed to get there. And we'll sometimes have a thesis around, hey, this particular company, they just— they're still doing founder sales at $5 million in revenue. And it's like, of course they're not going to triple at that, you know, given that configuration. And, you know, do we— do we believe that? It could triple if, you know, we were to help them make some.

Do you think it's funny? You, you, I mean, I have some good experience, but you have more experience for a little bit longer than me. I haven't seen this ever work in my, in my limited experience. I have never seen capital directly lead to tilting the curve. I've always, every, and, and, and in particular for me, I've made a few investments that were almost, they were almost triple, triple, double doves. And I'm like, I want to believe, The space is cool, right? I've always seen the ones that were almost triple, triple, triple decelerate. I've never seen capital, uh, because often they're the most optimized. Like there's nothing left on the table for the ones just below the level. Like they're, they're optimized. That's my thesis.

Why? I, I think that's right for the companies that have optimized, but there's a lot of times you see companies that are like 5 or 6 people. total, and they, they really are under-optimized and you can tell for sure, like, leaves are just falling on the floor. I mean, that's usually more of a seed, a Series A phenomenon too. Yeah. Um, and, but maybe, maybe the difference between, because I think your point is right, but actually we're in a little bit of a different era now where, where the, the prior kind of warnings after the ZIRP era of cut back, like, get to profitability, use your cash, like, people took that real literally. And in some cases, too far, too far. And in some cases, there are companies that like, they're just, they're, they're just being very precious about, about their growth because they don't have the resources to grow. And I've just in this, since we've set up Chemistry in the last 8 months, I've seen a few of those where, where the growth will be unlocked. I believe, I mean, you know, it's, it's too early for me to like, uh, uh, say it conclusively, but growth will be unlocked with if the team is able to scale itself a little bit. Now there's risk in that because they've operated in this kind of bootstrappy way for so long that like, can you actually do that? But I think there's more, I think we will see more cases like that where capital will help.

Yeah, I just get the email and let's move on. But you know, sometimes you get the email, you, the email's so good from a founder, right? And you parse through it and let's say they're growing 80% at a stage where it has to be 100%, right? And I'll email back and listen, everything looks good. I'm not going to waste your time with the meeting because it just has to be— everyone's different, right? This is the thing about investing. Everyone's different. For me, this isn't enough. And then sometimes the response back is, yeah, but if I just had the extra capital and, and maybe your, your feedback is sometimes that's okay. But for me, I've decided it's a— there's just—

yeah, I don't want to—

I don't want to lead anybody on.

Investors never want to hear—

I don't believe— I don't believe the extra capital is what's the issue. I believe you just need to be 20% better product.

Yeah, I mean, usually, usually that's masking something else. You're right. And you're right, investors never want to hear that. I think about my own reflexive reaction is probably similar to yours. What I respond better to is if here's a plan that we have that will enable us to hit these particular numbers. Yeah, it's not capital, it's things that we would do. Now, if it's product things, then I think you have to apply a lot of skepticism for that because you can do product things If it's like, I'm going to hire a team to do these product things, I would be skeptical about that. But if it's sort of like, you know, we've seen this work at this particular scale and we need this, this, and this, and like, I know we'll hit this particular number with that. I believe that stuff. I do. Yeah.

Okay.

That's how it's— we have to diligence it. You know, it may, but I could believe something like that. All right. So let's dive into, Tips for a successful Series A. And, you know, cut in any time, of course, with questions. This is the first place I always tell folks to start. Really important. And I think most people skip it. It's like, why are you raising money? And I think it ties to what we were just talking about. A lot of folks just sort of like, okay, yeah, I'm a seed-funded company. It's a year or two later. I've done some things. Now I want to raise my next round. Is the worst pitch. And it's like, and the why has to kind of incorporate the, you know, the next tip, which is the timing of it. Why is the now? And so I would kind of take these two together, but why are you raising capital? What are you gonna do with it? And hopefully that's very, very exciting. The why, that should almost start there. It's like, you know, give people a little bit of a framing around product, business, market. And then immediately talk about, hey, we're fine. We've got this business that's doing this, this, and this, but why we're going to raise capital is to be able to conquer the world in some way. And, you know, channel your inner, I don't know, Patrick Collison is very good at this. And, you know, some of the iconic founders of this day, Jeff Lawson at Twilio, one of the first investments I was involved with at Bessemer, is really good at like, why does Twilio need to exist? You know, he would show pictures of the telephony phone stack at big companies and how you could rip all that out and make a single API call and send a text message to confirm a package being sent or something like that. And so understand the why, and then related, as I said, is understand the now, which is just really about timing. And so this gets to some of the reasons that certain companies are really hot from the prior discussion that we had, is the now often ties into the theme of the moment, AI in some way. And so a perfectly reasonable pitch starts with, you know, we have a product that was not possible 2 years ago because large language models have made it possible to do X, Y, and Z and be able to have a conversational interface for the application, which allows non-business, non-technical users to engage with it. I'm just, I'm making this up. And now that's going to get even better. And everyone, you know, everyone can, can see and believe that from their own use of large language models in their own daily lives, but it's going to enable all of these things that were not possible before. And to be able to take advantage of that, we're raising capital to hit this sort of beautiful, you know, why, why statement. But the timing tends to be pretty important because a lot of times investors either implicitly or subconsciously will ask themselves, is there a why now moment for this company? Like, why is this company makes sense in this particular era? And some, you know, sometimes we can't answer that and we'll still make an investment because it's just the product and the traction's compelling. But usually there is a why now moment. You know, there's connectivity to something, there's large language models, there's, you know, CodeGen that enables whatever that just wasn't possible even a year ago. And then, oh my God, now, you know, the whole stack for how we build software is changing. And so, this company can exist now. So I think I've beaten that one enough. So then craft the story. Good storytelling is hard, but does tend to be really important for investors being able to kind of receive the information in a way that allows them to process it quickly and make a reasoned judgment on it. Sometimes it's kind of hard to pull apart a story, like why, how this company got started, where it is now, where it's going. Even with really good momentum and all the checkboxes that I mentioned, if you can't tell, it just requires a lot more overhead for an investor to be able to process it. And so I always tell founders, you know, kind of think through the story, forget slides and data and all that, just like bullet point out. And sometimes I'll do this for our companies, for them, like talk about it in a real flow where you could really explain The history, the founding moment, maybe there's a refounding moment or a pivot moment. There's a sort of first customer story usually, or first sort of set of traction there leading to this moment that you are right now, which is like the midpoint, which is like the, you know, think about movies. They kind of arc around the 82nd minute or whatever it is. You kind of want your story to like crescendo to like the conflict point. At the like two-thirds of the way through the pitch, that's like today. And then you move into the vision and where you're headed and what can happen and your projections for that. And depending on how later you are, if you're actually pinpointing, you know, revenue associated with things and stuff like that. So, but crafting the story tends to be pretty important. If you go to, you make it too boring, investors don't get it, are less likely to get excited about it. And I can remember, I can still remember some pitches of, you know, just founders that were amazing at that. I mentioned Twilio earlier, just, you know, really amazing at storytelling. And a number of other really good companies kind of had that same, you know, the founders just were unnaturally talented at that. Okay. Be intentional. Now, what does this mean? This means like run the, you run the process. Don't let someone else do it. And that's maybe counterintuitive because it's because, you know, you're getting interest from investors and you sort of want to want to just be accommodating. But think through in advance, like all the elements of this. And again, I tend to think of more focused processes are better than like just talking to anyone and everyone that will talk to you. There's debate about that and like many different approaches work, but at least in the beginning, I always say, you know, be intentional. Have a, have a story ready, have a, have a plan, have a plan A and a plan B, and go out to your, you know, a limited set of folks that you feel like you know well or can get to take the meeting that you think will be receptive to it before you sort of go blank at the universe. Now, now, like the best laid plans always get a little derailed. And you'll be open to the serendipity. If you get a note from Chemistry, you should respond to that. I'm just kidding. But like, be open to the serendipity. Of, hey, maybe in the process you will adjust your plan because a great investor that you didn't know before surfaces and they would actually be a really good fit. But like, at least start out with a sort of intentional intentionality to it. And then finally, and this debate kind of spilled out into the open, and if we have some time, we can kind of go into it a little bit that we have some slides on what are the metrics that matter, but focus on the right metrics. It can be, there's a lot of like shoving vanity metrics out there as a sign of something. And maybe other investors will disagree with me, but that, that is credibility destroying, at least for me. When it's, when, when a metric is, I would rather be excited by the deeper dive than disappointed by it. And so I think you want to really be super intellectually honest about where, what your actual metrics are. And what you think is achievable. And you know, it's fine to be bold in your projections, but have them be grounded. But certainly there are ways to spin your metrics that I think most good investors will uncover, will figure it out. And so I wouldn't suggest too much of an overreliance on vanity metrics, at least in this context.

And then bullshit, you're going to get 95 out of 100, maybe at YC Demo Day when things are hot, you can get away with a bit of a bullshit metric, but if there's any time to invest, just assume you're going to get caught, right? Lead with the good stuff. Lead with your attributes. If you're, if you're, if you're, if your churn is high, you can be honest about it, but lead with your growth, right? If your growth is epic, but like put a polish on it. But if you bullshit something and there's more than a week, it's going to get caught, right?

Almost certainly. Almost certainly. Yeah. I mean, there may be contexts where a vanity metric is fine, but just know that it's a vanity metric. And certainly when you're having a deep dive with an investor and you're talking about it, admitted, you know, this metric isn't really that, you know, it's something we say publicly because it has marketing benefit or something. But here are the metrics we really look at, and they may be different in all businesses. I don't want to give some prescriptive recipe that is, you have to use, but, well, maybe we'll skip this, but this was a little bit of the debate that spilled out into the public sphere on vanity metrics. But here's what, here's, For most businesses, most SaaS businesses or developer platform businesses, these are the metrics that, you know, at Chemistry and I think most firms are trying to get to. The first one's the most important, you know, how fast are you adding, you know, new recurring revenue? And that's the one that got debated recently around, I think it was 11x, where the accusation was that they were including non-sticky or trial revenue as part of ARR, which is actually okay. I mean, companies do do that, but I do think you have to sort of caveat and explain what's in your ARR and what's not. Um, so yeah, I think people got that wrong.

If you call it out, people are gonna get it. Just call it out. Just have a stack chart with— that's why we have different colors in stack charts. You could have different pieces, and then, and everyone's get— everyone's been around the block. They know that especially earlier stage, there's different types and qualities of revenue, right? Just call it out. Just stack it.

100%. I think it's fine actually to do what it sounds like that company did, which is including all the revenue and trials that we're going to cancel and drop. I mean, don't include trials that have already canceled. That's not okay. But, you know, if something's in trial, it's part of your ARR.

If they're paying.

And but, but I do think you have to make— that's why I add this. I would have said just tell people their net new ARR, but actually that made me think, give the indication of stickiness. Is it a trial rep? Is it long term? Is it what? What is it? And that goes to the next one, which is like your net dollar retention, which is really important. And so if like most of your net new ARR is not converting, your net dollar retention is going to look bad. It can look really bad. And so you can't have it both ways, right? So you have it would have to then show if you're including everything in net new ARR that a lot of that revenue does churn and you may have a model like that that lots of people try and, you know, the ones that stick really stick and land and expand. But I think you just have to provide all the elements of that rather than kind of just talking about the, the top line numbers without getting into the nuance and the stacked bar chart. I mean, it doesn't really matter how you display it, but yeah, stacked bar chart is the way to show it. We look in that dollar retention, which is like how much are the, you know, same store sales metric from retail, like how much are the prior customers from prior periods, you know, how many are still around and then how much are they buying and are they buying more and more. Um, and then we look at gross logo retention. And again, like businesses like Shopify have whatever, 50, 60% gross logo retention because they're dealing with very small businesses that come in and out. That can be okay to have whatever, half the logos that, that ever use your product go away. But just talk about what your model is and what your conversion on those logos is. Um, and be honest about it. But, but I always look at gross logo retention because I want to understand, not because like if it's low, I won't invest because I want to understand the nature of the business and the nature of the funnel that you're building. Um, CAC payback, that means like how long does it take to break even on $1 of marketing? Um, it's usually represented in months. Um, and you know, for stickier products that, that might be longer, it might be perfectly reasonable to have a long CAC payback because the, you know, the, the, the product is going to be, um, implemented and adopted for a long time. And, and for more prosumer, it's got to be shorter. But, you know, uh, we have all, we have all sorts of benchmarks for that that we can share. ACV, that's like, you know, your contract value. What's the size of a customer engagement? And then burn multiple. And again, these are burn multiples have been looking very good lately because I think a lot of companies have corrected for maybe they're less likely to hire, even starve themselves a little bit. It's not an unhealthy thing, but be very clear about what it is. So folks can realize this is a company that's kind of starved or is a company that's already burning a lot and just is raising more money just to burn more. Are, like, that may not be as good a proposition for an investor. But you should be aware of what your burn multiple, how much you're spending per incremental dollar of ARR that you add. And I put some benchmarks for that one on the right there that I think most folks sort of agree are, if you were to generalize, are kind of where you want to be. That's it for the metrics part. I was going to do a commercial for Christina at Zaster that I think Jason already started with. I'm speaking on, I think it's Wednesday afternoon. It's Aster, correct me if I'm wrong there. Um, uh, sounds right on the main stage, something like that. Amelia, tell, tell the actual. So definitely go and see her.

Now, Ethan, let's be clear, we've been doing this for a while. Everyone's on the main stage, but you're right, like literally the smallest stage in the corner is like, you gotta learn. You're, oh, of course you're on the main stage.

It's on the biggest main stage there is.

Yeah, yeah, main stage, SMV. 7, T-I-N-Y. You're right on, on the main stage. But yeah, she, it'll be, it'll, it will be great actually. We're all, we're all, we're all heroes of ServiceTitan, right? I mean, we all, it's a girl, we, we talk, done so much. It's great.

Yeah. Oh yeah. And she's speaking with Ross who's, you know, it'll be great. Part of, part of building up that business. So that, that'll be exciting. She was, yes. Part of working with Byron Dieter at Bessemer when they made that investment back in, I don't know, 2016 or something like that. It was a while ago now. Yeah. Maybe earlier, 2014. So anyway, that's all the content I have. I'd love to take questions if there are some.

We've got about 6 minutes. It's good. But maybe can I synthesize a couple of things for folks? So just the things that, again, that I think lessons in Series A and beyond that maybe people take wrongly from X and Twitter and social media. Okay. One, I want to get your thoughts. Running a tight process. Okay. I love Y Combinator. I think it's one of the greatest gifts to founders in mankind. But this idea that everyone should run a tight process, I feel, is one of the worst pieces of advice to mankind. I've literally— I've had two big deals done like the last 30 days in Saster Fund, little Saster Fund, and one literally last week, a mid-stage fund opened up the data room to 5 people Monday morning, got 5 term sheets in 48 hours. Okay, that's what internet says to do. But the metrics were perfect. I mean, not really perfect, but I, but I view that for most deals, I think this is terrible advice. If you, if your metrics aren't perfect and I tell Chemistry you have 1 hour to look at our data room, um, what do you think of this advice of running a tight process? What, how do you nuance it?

I nuance it to run an intentional process. I like intentionality more than tight process is bad generally for the series A because it's a real relationship and you want, like, we really want to like get to know you because like we just feel we can be better partners if we know who we're partnering with. Like it's like a business development relationship more than like a buying, trading a stock. And so I agree. I think, I mean, you can, depends what your definition of tight, but I think you want to allow in the intentionality, in the intentional process, time to get to know someone for your own benefit. I mean, who, this person that has going to be working with you on your board, maybe for a decade, decade or more, and it's something you can't divorce and you want to know the firm behind them because maybe that person's not going to be there for very long. So yes, I think tight, tight process is a mistake if you mean by that fast process. Yeah, but I think a process that you don't want to go on forever because it distracts you from the business, but you want to be able to do your diligence on the investor and give them time to get to know you so that they can make a reasoned judgment too, because you don't, you don't want them to feel tricked or feel like, okay, they didn't really understand what they're investing in. Those are the— where I've been on boards where They've gone out to raise rounds, they've raised them quickly, and then the person didn't, um, didn't really understand the business or the flaws in the business. Yeah. And so I agree with the comment that was just made, you know, an organized, structured process. That, that's what I meant by intentional, not, not tight, not fast.

All right. Next one that I've been thinking about a lot that is discussed, but maybe underdiscussed what it means for venture, although you and I kind of alluded to it before we went on. Look, no matter what anybody says on Twitter, if you want to make money in venture, okay, which is people's job in venture, I think you got to grow 50% at $500 million IPO. That's what the late— all the last batch did. Okay. Every single one of them was 50%. Sure. Can you IPO with the $600 million market cap? Sure. But you're not going to make your Series B investors any money. Right. And so no one wants to do those deals. So if that's really the bar to make money, Right. What does that mean? Rolling all the way back to A and seed? I think it's intimidating. And I think it's like pretty— because, you know, even when we look back, Shopify IPO'd at $1 billion, right? Twilio traded up, but it IPO'd at $1 billion. HubSpot IPO'd at $800 million. The growth was insane for all 3 of those. But it was also earlier. Like, the bar is so high to IPO. Are we pretending it's not there? Like, how does— what does that mean for venture today?

So I, I, I think that's the bar now. That's right. Right. You know, demonstrably true. And I might come down a little from, from those numbers, but not probably by a lot today. I think what people are counting on, I hate to say it, it's like another frothy period. That's not going to happen tomorrow, but people have short memories, probably, right? 5 to 8 years from now, it might be like back to crazy times again. Who knows? You know, historically that's been the pattern is there's these like kind of moments of like, extreme excitement in the public markets for what's new, and then they kind of close. And then you have to be like an exceptional, exceptional company, you know, on the order of, you know, a service titan or Stripe. I mean, Stripe's not public, or Databricks or something, but, you know, those companies almost go public. So I think, but, but what does that mean for founders? You definitely do not want your plan to be predicated on a market bubble. That's just, that sounds like a bad plan to me. And so you want to be ready for, any situation and you want to have a strong business where you have enough funding to kind of run it. If you're going for an accelerated plan, which could make sense to the whole discussion we had, it could absolutely make sense to go fast, but you want to make sure you have a backup plan such that you're default alive. And I think the default alive terminology, I forget who coined that, some, somebody around Y Combinator, maybe it was Michael. I think it's a good framework for once you hit your Series A, you want to just have a plan to be default alive. Even if you're going for it and burning cash because the markets may, you know, that markets, you just can't predict, you can't sort of on demand sell a company. There may just not be buyers, even if it's a great company. And so you have to sort of reflect that in your thinking. Yep.

All right. Let me squeeze one last one in and then we'll break, especially because you've done a lot of developer-focused stuff that's been successful. Let's talk for just a second. I want to get your thoughts on moats in 2025. It took me a minute to really understand Windsurf. And Cursor. But when I watched it rip through my portfolio and I watched my son pay for, uh, for, for the first time out of his own pocket, and he showed me what he did, um, I get it, right? I mean, and there's Replit and there's Lovable, but, but really the— so my— but, but you can switch, like folks are switching, right, quickly. So there's a meta question about, about that. But as an investor, when you're a Series A investor, when you see someone growing at the rate of Codium, Windsurf, or do you, do you just not care about moats because the, the, you like, you gotta pick your jaw off the floor for growth? Or how, how do, how do you rethink moats in the age of AI?

Well, when stuff's growing really fast, you, you sometimes, uh, have a cognitive flaw and forget to think about it. Um, and there have been some very prominent examples of companies that were growing really fast and then kind of stopped because they just, they became irrelevant quickly. And I mean, I don't want to insult any companies, but like they're out there, those, those examples.

There's stories, right? But we're betting on the upside, not the downside, right?

And so it still may be a perfectly rational move to go for that as an investor or a founder because, you know, usually momentum continues. But I think in this era where switching costs are a little lower, you have to think more about what the lock-in is. The way I evaluate it, just to kind of come back to maybe a framing of it, is love. Developer love, user love. Though that's harder to— ironically, the like lock-in of like, oh, you're contracted for 3 years or whatever, or you're— you've signed this, or you've embedded it in your technical stack somehow, those moats are shrinking. But if you love something—

yeah, they are shrinking.

Yeah. And it's like, wow, like, you know, the, the, uh, you know, the cursor type reaction now You know, and, and I think Replit's pretty cool too. Yeah. That is that people's minds don't shift as fast. And so I, I, you know, the, the companies that grew really quickly because they sort of hit a narrow need, need, but didn't have love, those are more likely to have been disrupted by something else than where people are like, I just love using this product. I, I can't think of a company where like the developer love or the user love was off the charts. That then and was moment— had momentum that then fell apart. I mean, maybe there's an example somehow.

Probably. Maybe you should add that to the KPI lovability at the end of burn rate lovability, you know? Well, yeah, well, developer sort of a—

yeah. When we published our developer platforms command back in originally in 2013 and again in 2019, developer love is right on there. It's like the fourth law, like make sure you have that.

And that's the classic old Twilio tagline. Ask your developer, right?

It's about your developer. Is your developer into this? Yeah. You know, Twilio is an example, right? We've brought them up a bunch or a company maybe like PagerDuty for DevOps folks. They just loved it because it like saved them from, it saved a lot of people from getting the page because it was, it was really designed with the DevOps persona in mind and it routed to only the one person that needed to get woken up at that moment. Not everyone else. People loved it, even though now there's a lot of ways to do similar things, but people still love Love that product. So yeah, that's definitely, that's a good answer. That's harder to disrupt, but it's not infallible.

I just think we've been trained. We should break. I think the world of ChatGPT and LLMs, I actually think just, and then we'll break. I, I, I'm all with you, but I do think it's retraining us. It's retraining us to expect much more for free. 'Cause so many of these products are like super, oh yeah, Slack and Zoom are free. But ChatGPT for free is 10,000 times better a deal than 42 minutes on Zoom, I would argue, right? I mean, both are a good deal. So things are getting freer. And then, you know what, I use Claude and ChatGPT for Fungible. And then when Deepseek launched, I used it, uh, for a niche case, which is I wanted to find out how TV shows ended after the last episode. I've gone back and forth, but I'll bounce, like, honestly, if there's something better, I'll bounce. Yeah. So I agree with all these things, but I just think value-free, be us turning into prompt engineers, even if we don't realize we're them. I think it's changing the way we think about switching moats in software. And I don't have the answers, but I do think it's changing.

Yeah, I think that's right. I think it's certainly in the prosumer world where it's like kind of the tools we adopt in our daily lives, bring into work, they're, the switching costs are lower and lower. It's easier than ever to prompt the thing to know what it needs to know. Yeah. Some data export, you know, implementation, you know, Salesforce, Supabase.

Impossible for a lay user to do. Impossible to export that data, do anything with it. Impossible, right?

Yeah, we're in a different world now. And, and I think that's, I think that's good for all of us that are thinking about disrupting something else, because for the most part, they're trying to disrupt somebody. And so the fact that it's easier than ever to do that is good. But you got to think about that on the flip side too.

All right, we're at time. Ethan, thank you. This is great. Go to Chemistry VC to learn more. Just email in any deck. Just, just, just flood them with decks and meeting requests. Come see Christina. She's SaaS OG. She'll be at SaaS Annual with—

it really will be great—

one of, one of our, all of our hero companies, ServiceTitan, which is one of the great leaders in vertical SaaS. They'll be together with the CRO. So you'll see Chemistry and everybody, uh, in May at SaaS Tour. And again, just, just, just send Ethan all— if you're top 1%, send him your deck today. Send him your deck. He's got $300 million to deploy. So thanks again, man. Really appreciate the time.

All right, thanks, Jason.