Kevin Hartz's 2025 Outlook: We won’t see more IPOs & Implications of Trumps Presidency on Founders

Now there's just still really no incentive or very little incentives to be out in the public markets. Founders are kind of looking at that and saying well let's keep private and let's do these insider stock sales to get some liquidity to employees and investors too. But it's a conundrum for venture.

Ich habe vor einigen Monaten mal über die Forschungszulage erzählt und in den letzten Monaten haben dementsprechend mehrere Unicorn Bakery Hörer und Hörerinnen Hunderttausende vom Staat zurückerstattet bekommen. Deswegen, falls du dich noch nicht mit der Forschungszulage beschäftigt hast, dies ist eine Förderung, die du rückwirkend für Projekte anwenden kannst und relativ schnell dahin kommst, dass du sechsstellige Beträge einreichen kannst, gefördert bekommst. Und dementsprechend, ich habe in den ShowNotes unter dem Alles über Unicorn Bakery Link, den du klicken kannst, ein Formular verlinkt und da kannst du die Forschungszulage beantragen. Dort, wenn du all deine Daten eingibst, connecte ich dich mit demjenigen, der das für die anderen Hörer und Hörerinnen schon gemacht hat. Jemand, dem ich sehr vertraue und der eine wirklich hohe Erfolgsquote hat und im Zweifel alle Arbeit übernimmt. Dafür zahlst du eine kleine Provision. Ich bekomme auch ein bisschen was davon, weil ich dich empfohlen habe. Ich habe von meinen bisherigen Empfehlungen nur Positives gehört. Dementsprechend, wenn du dich damit noch nicht beschäftigt hast und es angehen möchtest und Geld auf deinem Konto haben möchtest, das sonst verfällt, weil du kannst es drei Jahre rückwirkend machen, klick jetzt auf den Link und füll das einmal aus.

Welcome to a new episode of the Unicorn Bay Create. Today's guest is Kevin Hartz for the second time on the show and Kevin and I spent some time in San Francisco talking through many of his life's work and thesis and how he's investing, but also building companies. Therefore if you want more context like the quick rundown is founded Zoom with an X sold to PayPal, founded Eventbrite and then invested in companies like Uber, DoorDash, PayPal and many others. So amazing investor, amazing builder now building Sauron and therefore and a always something to mention and not to forget. And I asked Kevin seven for a spontaneous. Recording on hey, how do you as a builder and investors think about twenty, twenty five what are the thesis and bets that you're making, because you're bringing together two perspectives for a long time and therefore it seems like it worked out for the last decades how you make thesis for yourself and I would love to share them with the rest of the founders out there. So Kevin, thanks for joining.

Fabian, thanks for having me back here. I mean, I will just say at the high level really, what's important here is that you can only really count on things changing dramatically. We certainly have some segments that are going to continue to expand at a breakneck pace. You know, generative AI being the kind of poster child for this, but other areas as well in defense, tech and crypto and others. But we are, when I put my investor hat on, I'm looking at the earliest of stages and we're looking at the those are companies that are in many cases not even formed yet and you're speaking, I'm interacting with founders that are telling me how they see the future in a particular way and it's and so you know, I won't venture make certain conjectures in certain areas of what direction AI goes or so on I certainly in my own area of Soron, which is a home security business, know that we have this privatization effect having happening in law enforcement and technology that's been used in other areas being applied of what we're doing in the case of Soron. But we're looking for these fresh new founders. You know, last year we started working with Ethan Thornton at Mock Industries, which is a defense tech company and he's building a supersonic drone that can travel five hundred kilometers and hit a target with high, high precision and nineteen year old dropout. And you know, he really has a view for this propulsion systems for weapons and rockets and so on that is like no other and so we really look for that inspiration from this next generation of founders, I'll name one other abby from general biological he is taking fermentation processes to usurp. Or to trade out the old way of making these industrial chemicals, petroleum based chemicals with fermentation based. And this is now coming into a manner that can be done economically and it's quite exciting. And as you hear from that, those are two companies that are not AI centric at the core, they of course in many ways use generative AI or have systems employed. But the but the exciting thing about today about Europe, about the United States in tech is that there are so many different platforms that are emerging, whether it's industrial, Biotech-like. General Biological or Defense-like mock industries.

Do you have a thesis on the industry that might lose the most in twenty twenty five, just because you mentioned some that might rise that are not the specific AI.

Well, it's pretty clear that A lot of DPO work is going to. Be going away and for those that haven't may not be aware of this, there's something called business process outsourcing and it's kind. Of funny acronym for just people doing a lot of busy work behind the scenes of checking documents and affirming notes and transcriptions and things of this nature. And there's a massive industry, a lot of. It in different parts of the world that certainly is like the low hanging fruit of the AI boom. But then you switch to where something like eventbrite is today with our customer service chat. That's all done via a company that a star back called Decagon and Decagon is AI customer service. And so all of a sudden you see the thinning of the number of seats in a world that the old stalwarts, Zendesk and so on would really thrive getting so many licensed seats for CRM software. You now have one seat effectively. So it just kind of radically changes the business model and radically changes the need to have these call centers full of people.

Before we go into the tactical things that I could use while thinking about the exact strategy. Let's zoom out as far as possible and look at the biggest changes happening in twenty twenty five. Which one of them is definitely Donald Trump taking over the White House again.

And then taking over is the right expression for that. It's kind of like a hostile acquisition, but I'm excited for it. I'll tell you that I'll say that publicly. It's a really exciting sea change to see and I interrupted you. So I'll let you finish.

Oh good, oh good. The question that I had is like from a US perspective. What do you think are the biggest or are there changes happening due to change in government and then also in the long tail that we have. To talk about how does this affect for example companies that start in Europe and want to expand to the US and all the implications. But first of all, what are the biggest changes that founders have to think about? When we think about the change of government?

I think it's great for founders unequivocally over the last couple decades. We've just creeped and creeped and creeped in different mechanisms of bureaucracy into the company creation process and getting a product to market in all these. Different areas and it's just become overbearing. And and there is a revolution in this sense in the United States. People saying we're sick of that. We want to see the government move quickly and that's. And thus you see the new government coming in the Trump White House Really Full. Of entrepreneurs that think like us and will act like us and will really drive forward with a lot of great change. And so we should kind of welcome that kind of change, because what we expect is things would be a lot smoother. So for example the regulatory regimes around Crypto is kind of the obvious area, but if you can just allow people to build unencumbered without all the friction that they had before, that's really going to even in absence of our zero interest rate environments now that's really the best thing you can do to help grow the economy.

Do you think there are immediate effects that I will see as a founder in twenty twenty five and be like. Oh yeah, politics is changing something for me, because there are so many founders and investors also in Silicon Valley that are like hey, our work here works because we're so far away from Washington. We can just do whatever we want in quotation.

That's a great question used to be that we were just too small and too quiet. And you know, when I started doing the money remittance business, you know it was in the wake of nine eleven way back, you know we were helping immigrants send money back to their families and we were hyper-aggressive in how we. Interpreted the regulations. And as time progressed and we grew bigger, the regulatory bodies did step in and we had to comply and we did comply. But I don't think, you know, I think a lot of companies don't get off the ground today, because the regulatory regime is so overbearing and you know, I, I guess what I would say on the yeah, the regulation side is just that now it's so visible social media Mark Zuckerberg, you know, coinbase and so on, it's so visible that it's the first thing on the in the minds and hearts and minds of Legislature of Congress. You know, the White House, it's tech has become so mainstream that you immediately want to step in and try to make things better. But we need to kind of pause from that step back and rethink about how we curtail entrepreneurism. It's what's really driven the economy over the last few decades outside of oil.

And gas and things with changing government and also like we have to look at economics and then I would say let's put on and use A scale from like very efficient growth to hyper growth and money is. Everywhere and is pretty much free and we just invest invest. Why would you say, are we or might we end up in twenty twenty five will look more. Like the very efficient route or more like money will become more out being out there and being like in quotation marks thrown at companies.

Money is being thrown at companies. It's good in many ways. We've never been in a period where there's so much availability of capital, create new businesses and drive innovation and that's very exciting. We just have to be careful of the downside of that is the founder must maintain their own, like if they're taking a lot of money and it's at high valuations and you're not having to give up board seats and you don't have as much accountability because the investors don't own as much and aren't going to really push in to make changes. One just has to rely on themselves to build the business. So that's the trade off with the abundance. Of capital in the markets today is like I've unfortunately seen a lot of companies with a lot of potential, just not have the checks and balances, not have the mentorship and you're off the path that happens more often than not. We certainly hear about the winning cases, the companies that are knocking out the park and hiring perfectly and have gone through all these different challenges. But the double edged sword of the abundance of capital is just making sure that as a founder one can find great folks around that are incented to help if one feels that they need it. There is a small select group of founders that can make all the decisions from day one on their own, even at a very right young age. But in my experiences of bringing two companies from zero and into the public market, it was a lot easier, a lot more helpful to me to bring in other voices and have people helping there. So that's the trade off of lots of capital versus scarcity of capital.

Would you say it becomes cheaper to build a venture? Due to for example all the AI tools that I can use right now early on already.

Absolutely that's a great question a number of years back. Friend of mine, Max Election posted a piece on when we have the first one person billion dollar company and it must have happened, but we have so much infrastructure now. We have all these different ways to obfuscate all the things in the nineties you used to have to carry servers into a server, into a colocation facility and set them all up yourself and everything's being obfuscated. All these different services allow you to really focus on the core part of your business and they can be done insanely capital efficiently. That's one way to approach a business. I would say that was more in the kind of like Zoom in eventbrite, we were trying to create like A Perpetual Motion Machine in A. Sense that can just kind of run on its own. In the case of eventbrite, you can as a event creator go to eventbrite, create an event list, it promote it, sell tickets and the whole thing and nobody really needs to be involved. It's all engineered and it's all self service and automated. In the case of the business I'm building today SORA on home security, that's a combination of hardware, software services, people. It's a complex business that in that case you know that the challenge is the complexity of the business. It also makes it hard to replicate. But that's a business that will require more capital than say some of the AI businesses building atop of Anthropic or OpenAI.

Does this also mean that when we look at let's say the more typical software company, does this also mean that you as an investor think hey, I can give them less money and expect the same outcome that I did like five years ago.

I hope that's the case you know we all we all hope that's the case I think that it's really the founder that should decide or should know and maybe new consultation and so on of how much capital to take on. You know, you want to you don't want to over capitalize the company, but you don't want to end up in a tough spot where the capital is low and you're forced to raise because that puts you in a position, you know, on your heels, on your defense and so managing. You know the capitalization of your business is very important and it can be done with less capital. But I just see out there when rounds are being done that founders, especially since the valuations are higher or adding some amount on just and thus experiencing the same dilution, I think is where you're maybe seeing that happen the most.

I mean, the other side could be, I give them the same amount of money and just hope that or expect is like the same, like more outcome linear in linearity to how much money I gave them compared to what it was and what the buying power was like five years ago.

For example, yes, we always have to remember that you know in startups it's it's very hard and so and then the majority of those will not make it like. I had mentioned a company called Decagon that we backed Ashwin Srina, the co founder, he was at Palantir and then I backed his company after he left Palantir. Didn't make it supported him with his next company. Didn't make it started. Decagon POW really took off. So I think like one year just have to remember that most of these companies don't go on. But in the case of the companies that do endure that dude, sustain growth and break out, they are able to do it with relatively less capital.

How do you think the M and A and IPO market will develop in twenty twenty five. It was quite dry during the last years. We saw twenty twenty four smaller uptick again and had the first IPOs again and mnas again that were significant. What do you think? How does twenty twenty five turn out?

Ich habe vor einigen Monaten mal über die Forschungszulage erzählt und in den letzten Monaten haben dementsprechend mehrere Unicorn Bakery Hörer und Hörerinnen Hunderttausende vom Staat zurückerstattet bekommen. Deswegen, falls du dich noch nicht mit der Forschungszulage beschäftigt hast, dies ist eine Förderung, die du rückwirkend für Projekte anwenden kannst und relativ schnell dahin kommst, dass du sechsstellige Beträge einreichen kannst, gefördert bekommst und dementsprechend, ich habe in den ShowNotes unter dem Alles über Unicorn Bakery Link, den du klicken kannst, ein Formular verlinkt und da kannst du die Forschungszulage beantragen. Dort, wenn du all deine Daten eingibst, connecte ich dich mit demjenigen, der das für die anderen Hörer und Hörerinnen schon gemacht hat. Jemand, dem ich sehr vertraue und der eine wirklich hohe Erfolgsquote hat und im Zweifel alle Arbeit übernimmt. Dafür zahlst du eine kleine Provision. Ich bekomme auch ein bisschen was davon, weil ich dich empfohlen habe. Ich habe von meinen bisherigen Empfehlungen nur Positives gehört. Dementsprechend, wenn du dich damit noch nicht beschäftigt hast und es angehen möchtest und Geld auf deinem Konto haben möchtest, das sonst verfällt, weil du kannst es drei Jahre rückwirkend machen. Klick jetzt auf den Link und füll das einmal aus.

I think we just unfortunately can't rely on that on IPO and M and A markets there's not much incentive to go public. I used to always point out what this quote that John Dors from the nineties is. Six quarters of increasing revenue growth in the company should go public. Like there was a period of time where companies you just get pushed out of the nest and companies were going public on a more frequent and earlier basis and it's just gotten later and later and now there's just still really no incentive or very little incentives to be out in the public markets. You know, I'm obviously tainted with, it's been a rough, a little bit of a rough ride with eventbrite, which is cash flow positive. Three hundred fifty net revenue did something like five billion in tickets and as a public company and you know stocks down quite a bit. And so I think founders are kind of looking at that and saying well let's keep private and Let's do these insider stock sales like a SpaceX or like a or like a sonos. If you remember that company used to do it just how do you do regular kind of stock sales to get some. Liquidity into employees and investors too, but it's a conundrum for venture investors. There's that the exits are all kind of locked up and on the acquisition side. Oh my god, it's terrible. Like Google Meta, like all the companies that should be swallowing up doing the tuck unders and so on. Just aren't doing them. They're just not happening. And that's a lot of the regulatory regime of this concern of looking like a monopoly in which most of these companies are monopolies. Let's not get it wrong, but so there's been very little on the M and A side as well, so that's bleak. But you build a great company and you'll have lots of options and that's really you have to look at your own individual use cases. Just you'll have many options as time.

Progresses from your perspective. What would have to change for the IPO market to become more. Attractive?

One is it that the markets shifted in a way that don't favor small caps. So because we have this magnificent seven Nvidia and Meta. And Microsoft and so on these like just astounding, size ownership billions and hundreds of billions of dollars of ownership by the institutional investors in the public markets. And you know like they're, they're not interested in a twenty five million dollars allocation in a new company or a fifty million dollars allocation. They want to put more money to work and so the fidelity is in T Rose and Bailey Giffords and all these. They've just seemingly grown so large they don't seem to me to care as much about the new Allocations, the new IPOs and so it feels like there needs to be a new set of investors for that stage that wants to take that on. I think it's a very attractive side, but it just doesn't work as well right now in the public markets. I think that's a very big one. The cost of going public and maintaining a public company with Sarbanes Oxley, the regulations and so on. I hope those get all reset because it's expensive to operate as a public company. You know, that's another side of things that's pretty important There can you share.

A ballpark number of, like going public and then maintaining it for let's say our annual, like maintaining costs, knowing it changes, but like from an eventbrite perspective or zoom and like compare that, yeah.

I don't wanna misquote it, I wanna be precise and I don't recall exactly those numbers just that it's. It impacts earnings, you know, it has an impact there and it's and it's significant versus staying private and there's all the other sides of being public and maintaining the relationships, the various investors and aspects that pull at one's time in resources, besides just the dollars.

How do you think the venture industry, especially the VC side of things and limited partner side of things will be impacted by less M and A and continued decrease in M and A activity and IPO activity. Given that not much liquidity is going back into the funds and then to the distributed to the limited partners. Therefore also meaning they have to think about where. Am I over invested in VC and can I? Redeploy in the next fund, etc. Etc. You have to think about it with a star as well.

The good news is that the top funds, the highest echelon, the top decile of funds, you know, always have such quality companies that, you know it's it's a bummer. The liquidity is painful, but it, you know with the best firms producing the vast majority the kind of power loss winners that kind of overcomes it. There's just so many companies that are just stuck in private sort of purgatory, you know, There needs to be something done there. There needs to be a way to better facilitate some type of trading out of stock of investors over certain time periods, because most funds are established to be on a ten year basis and the fact that it's going that they have to be extended past, that is unfortunate, needs to be fixed. And we need to find a way to be more vibrant with these companies. Companies need to be able to turn over their shareholders to that next level of shareholder when the time is right and not just be parked in their original investors from ten years prior.

Okay, interested in how this will change over time and like if it's solved, how it's solved. Like it will be solved, if it's a problem, it will be solved. We just don't know how yet.

But somebody very creative Fabian will come up with a very creative way, a new type of secondary market and I haven't been creative enough to figure out what it is. But I hope some listener out there goes at it because it's a really big problem.

Let's use the last five minutes and also talk about a bit more in depth on the AI topic that's always in the room right now. So how do you think about AI at the moment? What are you observing? What are you like? Hey, I'm bullish on this? I'm bearish on this. How do you currently observe it?

I mean, I always go back to platforms. Is that in markets like the current one, there's a new platform, There is this revolution of the transformer. The innovation of the transformer published by the Google Team and ChatGPT was born from this. And we see OpenAI, we see Anthropic, we see miserable in Europe, We see a number of now foundational model platforms for developers to build on top of and that is what drives a really great venture cycle, is a very great platform that it's just the sky's the limit. If you think about the different ways consumer and Enterprise and SaaS and Security, that AI can be used as we know it's so it's mind bogglingly broad and it's so exciting to see new companies come to us every day with new and thoughtful ways that we would never thought of and so that's just such a healthy sign and this comes out of tech. You have, you know in innovation you had like the Netscape browser and Mark and Dreeson, you know launched and the web Internet first one point zero revolution was launched. Or you have the iPhone came out and you had apps like Uber and Airbnb and all of a sudden, you know, massive growth on that. This is just like another granddaddy like this is like the granddaddy of All Platforms, the OpenAI Platform, the Entropic Platform. It's very exciting. There's a lot of competition on the foundational model side which we like, because we want to see innovation price checking things not get too expensive for those that are building on top of it. And so we just have all the right ingredients for A very exciting five years we're going. To end up in a bubble. We always do, it's mentor of mine. Dick Kremlin explained, Capitalism is like a pendulum, it's always swinging back and forth. It's never just right in the middle in a you know kind of metered pace. It's always either boom or bust and so we're we're swinging towards that that boom stage and then some point it'll it'll be overdone, but like the Internet, like you know, there was a period where in the two thousands that you know, Amazon was thought to be a fraud and a fake and the Internet was dead and all this sort of stuff and we know how big it is now. AI will live up to everything in its hype and more It'll just appear in a different way at a different time period than we all. Thought.

Do you observe. Does the time between boom and bust get faster over time? So it's like more. Does the pendulum swing faster or slower or the same pace throughout the years and decades?

It's a great question. I think it does accelerate and the reasoning is that just things moving at the speed of light. You have a more global audience, you have tightened communication. So if you think about some of the building blocks to the Internet, Cisco created the router and it took years for that to all go into place, but it built the underlying pipes for the Internet and so on. And then so these phenomenon have come by and have taken time. But now, as we build on top of these new phenomenon, I see it accelerating and I see that as exciting. So we might find some new area that we hadn't even thought of in twenty twenty-five emerge and emerge. Very quickly and much faster than we've seen of platforms in the past. I built on top of the PayPal Platform. That was the platform that I first really got my companies into orbit, Zoom and then eventbrite and that was very important that phenomenon.

What will be your advice for founders going into twenty twenty five as some famous. Last words.

Founders out there should really have a thesis for their business and how the world will work over the coming years and how their business will thrive in that environment and then just stay firm to that. It's you know if you, if you don't run out of money and keep driving forward with persistence, you know, it's it's hard like there's a lot of ups and downs, but being persistent and you know going through like the times where it feels like everyone else is growing at hyperspeeds except for you. It just takes time to set things up, usually for fast growth, but the persistence is the key part.

Thank you Kevin, thanks for sharing all your perspectives.

Thanks, Fabian. Enjoyed being.