AI’s Labor Crisis, Bridge Round Math, and Google’s Quiet Takeover

Sometimes you go into these things with a set of beliefs and hypotheses, and if you're wrong, it's okay to just shut it down. You don't have to do some YOLO pivot. It's actually okay to just be like, look, the conditions that needed to be true for this to be a good idea are no longer true. I recognize that. And we're gonna go to something else.

It'S the week of May 26th. Welcome to the Learning Corner, a Precursor Ventures podcast.

Welcome to the Learning Corner by Precursor. I'm Mia Farnam and I'm joined by our GP and Managing Partner Charles Hudson, where we will be talking through the articles and Goodreads that caught our team's attention over the past week. Our first topic is from a good friend at Alicore, Yousef, who reflects on the growing tension between AI advancement and labor displacement. Feels like since we mentioned this on a podcast a few weeks back, there have been a lot more open conversations about what AI threat to labor looks like. While AI promises productivity gains, it's increasingly eliminating entry level jobs, eroding traditional on ramps into professional life. Yousef calls for a new wave of investment focused on economic infrastructure. AI that empowers workers, improves public services and expands educational access, not just automates headcount. Drawing on his own immigrant family background and experience at Uber, he warns that investors must grapple with the societal consequences of labor automation and argues that capital allocation is a patriotic act. Quote where you invest shapes the future, he writes, calling on VCs to build a more inclusive AI powered economy. One great quote from the piece was quote Last month, such private conversations with friends in VC have intensified as more pitch decks sold cost cutting and fewer painted the inspiring vision of giving people superpowers. And it's really crazy how quickly the narratives can change. However, it honestly makes a lot of sense. Enterprise clients are finding that the value of these quote unquote superpowers is much lower than marketed and now companies almost need to pivot to the cost cutting story to attract and maintain customers. So, wanted any additional thoughts from your end on this one?

Yeah, I'm glad Yousef wrote that post. I really enjoyed reading reading it. I think there's two things that feel different. One is I've been following the duolingo social media response to the post and you know, it's interesting for a brand that was for a long time I think held up as a paragon of how to do social and beloved, it's been interesting to just see the response to people and I think we're in a world where most of the discourse around AI we're only kind of hearing from the capital and management side of the equation. And so because we're only really hearing from for the most part, capital and management, with one exception, which I'll get to in a second, I think what you're hearing a lot is a top down view of what this technology can do. And most of those folks are focused on improving efficiency and cutting costs. And so some people are more direct about that than others. But I think it's been interesting. I haven't heard or read the voices of customer service folks who've been negatively impacted. What I have been fascinated by is just listening to people who are professional software developers who are using Windserve, Cursor or other copilots and, and the mixed feedback I get from them about the efficacy of these tools. And it seems to be also a function of where those folks are in their career and how much formal training they have in software development. And I would say it's not a universal. This is an amazing tool and I hope that as we continue to roll out AI, I don't think we can put the toothpaste back in the tube, but I do hope that the discourse expands and we hear from people up and down the stack. Not just the people in leadership, but the people who are being directly impacted by these technologies in terms of how they feel and like what their plans are. And people in the middle have real sympathy for. We're trying to figure out like, hey, I've got a team of five people but I've got a top down directive to deploy AI. I want to do my job and deploy AI, but I am on the front lines. I have to deal with the fact that we have four customer service people going to two, which means two of the people who report to me. I'm going to have to really have a really tough conversation with them about what it means for them. And so I think the privilege of being a venture capitalist is the decisions you make, as yousef mentioned, about what you fund impact the future. And we're literally in the business of funding the world that we want to see exist. And I'm certainly not saying we stop AI or try to roll it back, but I do. We should be mindful of what are the consequences. And it's been interesting. I have a lot of friends in venture and this is becoming more selling because they have college age children or high school aged children and they're trying to figure out what advice should I give my child about what to study, what should I do if they can't find a job in their chosen field? And there is some early evidence that it's those entry level white collar jobs that are, it's not that they're being eliminated, it's just the demand for those is going down and firms might hire fewer of those people. I also think what we might realize is that sometimes when you graduate really matters and we might learn learned that this optimism gives way to a hey, we kind of overdid it. Yeah, we actually do need, we do need these people. And one thing I'll never forget is I had a bunch of friends who work in white collar service professions and in around 2012, 2013 they were all complaining. I was like, what's the problem? They're like our partner classes are very small. We don't have the people we need to promote. I said, what happened? He goes, well, in 0708 during the GFC we just stopped hiring. We knew things would get better but like we just stopped hiring. So we have these donut hole classes that are just really small and we don't have the people we need to promote and leadership. And I wonder if something similar will happen which is, you know, you've already seen Klarna backtrack a bit. Will people say wow, like for a few years we underhired and underinvested in people and now that we need those people, you can't go back in time and grow them.

You would think that in so many cycles that this has happened to large companies. I've seen in Covid for every consulting company they stopped hiring and they went to this massive hiring because they had too many projects to be able to service. And so they overhired and they had to cut people back again. You would have imagined people to understand how a slinky moves. They don't. And I find that to be interesting. And over the weekend all the news around anthropic and OpenAI of like the models not actually following the rules of the people who hard code them and doing the things that you want them to do. It's this weird thing we're trying to bridge of. Yes, you can add these capabilities in, but is now the right time to do them? And do you change everything around the infrastructure of your business to fit that in today? Is there a slow drip method that we can better run?

One of my VC mentors, he's like, you know, consistency has value. If you just kind of invest at roughly the same pace all the Time, you'll feel a little slow when things are busy, and you'll feel a little busy when things are slow, but you're not trying to guess or time the market. And I think there's something to be said in business for consistency and just saying, look, we're going to hire these people at a consistent clip. Some years everyone's going to be stretched to the max and there'll be other years where we'll probably be carrying a few people that we don't need and on average it'll be right. And trying to get it exactly right all the time seems like a fool's errand to me.

Yeah, no different than the public markets of trying to time in and out. Last question on this one. Anything else that you're feeling folks are being more honest about in the venture ethos Now?

I've talked to a few people who have essentially said I worry also about some of the people who are impacted because most people I've talked to have been like, we're not really worried about AI impacting our ability to get the most out of our top 25 or top third of our employee base. It's really the bottom. And I just feel like the stigma of being laid off due to AI and what that will do to the folks who are looking for work. And they're like, hey, I was part of the such and such doing like, oh, you were one of the ones that got laid off due to AI, that therefore you are an underperformer. And I think that's different from just pure cost cutting sometimes. So I think people are beginning to grapple with the fact that layoffs and staff redemptions are not this abstraction. They're like actual human beings who will have to go find something new to do. And some of them are in professions or verticals where, you know, the long term career prospects for entry level customer service done by humans are probably, it's probably not great.

Our next topic is from another friend, Peter Rocker, who dives into Carta data from around 7,100 startups and finds that companies raising bridge rounds after their priced seed round are only half as likely to make it to Series A. While founders understandably use bridges to survive harsh funding environments, the rationale from investors is less clear and the outcomes are statistically poor. He challenges the assumption that bridges help companies, quote, get over the hump, suggesting that investors might be better off backing new companies than doubling down into struggling ones. Charles, I think one thing that might be helpful is actually hearing from you. When bridges became more Popular and more as they were emerging. Was there more negative sentiment about the bridge as we see today?

Well, I think I'm living through the 15th Series A crunch in 10 years. I think it's amazing. We used to have bridges that everyone's like, no, no, no, bridge is a bad word. I'm sure everyone's heard the joke. Like, we, we only invest in bridges, not peers. The old bridge to nowhere. So I think people said bridge is a bad word. So we have to rebrand the bridge. And then we got Post Seed and Seed two and seed extension. Anything to avoid the word bridge. And I think there was a period of time where bridges worked really well because it felt like, hey, we were just a quarter or two short of Series A metrics. Let's go back and fund them, and we will go give it a try again in two more quarters. And, you know, if you didn't get it, you didn't get it. I think in the last few years, we've moved into a world where I think Hunter was the one to coin it. You know, seed is a process. And thinking of seed as a discrete single funding round to me feels outdated. And I think what's happened is nobody really knows what good enough looks like. At Series A, people know what the progress looks like from the moment they invested in the company to where it is when the founder goes out to decide. In my experience, it's founders who decide when they want to go raise. It's not VCs telling them when they should go raise, it's the founders making that choice and they go out and raise. And what I've seen is sometimes you go out and you get very close to getting a Series A and you come back and you go, wow, there's one or two things we need to clean up about this company, but we could do that on a little bit of money. In some cases, you're like, wow, we're not even close. But we know kind of where we need to get. And with another million or two, we could get there and give it another try. And so I would say there are bridges of optimism and bridges of realism and bridges of necessity. Some. Sometimes I think it's important to remember it's really hard if you're a board member in a company. So I talked to rlps about this. Most investors, I think, have a rational view of their portfolio companies and can say, this one is not a good one. And I don't think that many VCs will knowingly throw good money after bad. I think sometimes you're like, I'm on the board and if I don't do this bridge or extension, it's going to send a very strong signal and maybe a stronger signal. But honestly, me, there's a lot of times you're like indifferent. You're like, this company's okay. It's not so obvious that we shouldn't give them money, that we'll just decline it outright. And it's not so obvious that we want to give them more money kind of in between and more time will hopefully help that company figure it out. And everyone says, well, when are graduation rates going to come back? And I wrote this to you all internally. I look at Peter's data and what it tells me is if you're a startup, you get seven to $10 million across two to three arbitrarily named rounds between pre seed and seed to prove that you are building a venture scale business. And to be kind, we'll say that's a business that people think could be worth $10 billion or more, led by a very compelling founder. And if on 7 to 10 million dollars, the Series A community doesn't see it, they're probably never going to see it. And like that's what you have and you've got to do everything in your power with that 7 to 10 at most to prove that you're building something special. And if you aren't, there's no amount of incremental improvement, metrics, improvement, like none of that stuff's going to matter. They've sort of voted on your idea and team and I think it's important for founders to internalize that. And I've internalized that as an investor and I think about that a lot when people come to me for bridges and extensions and I'm just like, what if the market's already decided this just isn't a venture scale company? There's no reason to put more money in and push for that goal.

I think a lot of the funds that specialized around Series A for the last handful of years were really rocked by coming in higher valuations. And so when you think about funds that aren't able to raise subsequent rounds, we're going to see less folks who play around there. So that probably plays into that well. Of like, it's just going to be harder to get seen by people because their benchmarks are just so much higher than they were prior.

And if we had a healthy middle class, a venture of 400 to $750 million funds, it wouldn't be so dire. But I Think the challenge is both. Every GP I talk to at big funds is like we're doing this barbell thing. Really big funds and really small funds. And most LPs believe that's where we're headed too. And without kind of this middle tier of funds, you're either a 10 to $25 billion company or you gotta find another plan because you're not gonna raise a series A from a big firm. And I wish we had a healthy middle class of firms. I'm not optimistic we're not gonna have an explosion of firms filling that gap.

And I think that's the tough thing to, to swallow, which is if that's the opportunity where you could stand out as a fund, wouldn't you want to concentrate your efforts there? But I know the math doesn't seem as exciting as it would be if you could become the biggest.

Just come in at later rounds, or own the entire life cycle. So this middle is not as attractive, I think, for fund managers, because also it's this complete unknown. You're still dealing with imaginary metrics and traction and you don't get to participate in the immediate upside that the earliest stage investors do.

And you still need power law companies. So you need companies that are big enough to be interesting to you. So we'll say 1 to 2 billion, but not so obviously huge that they would catch the attention. And because the other problem is you're not going to win the bids for a lot of these because if they're obviously big, the firms with more capital will is pay up and they will output. So the reason that middle is under pressure, it's a hard place to occupy.

One last question for this one, for founders who are thinking about bridges or raise them prior, how should they be thinking about maybe deciding to do another bridge, to not do another bridge, and what sort of counsel or soundboarding advice is the right one to guide them?

I mean, I've at some relationship risk have decided in the last few years to just be more honest with people and direct about what I think their prospects are in two dimensions. One, what are their prospects for actually raising more money? And two, what do I think they have to do with that money to unlock the next round? In some cases I'm like, you can do this bridge extension, but you have to get the company profitable. It's non negotiable in some cases. I've told them you can raise this bridge round, but we have to get three times as much out of every dollar for this next set of dollars as we did for the last set of dollars or else it's not going to work. You just weren't efficient enough. And I think founders need to have some sense for what they're going to do with the money other than simply remain in business and stay alive. That's not a reason to write a check to a they can stay alive. And I feel for founders because a lot of times the feedback they get about why people didn't invest, oftentimes founders like, we just got to get from 50K MRR to 250. I'm like, I don't think that's actually the root cause. I think the root cause is people think our market is small, or people think your team isn't that great, or people think there's a competitor in their category that's already won and you're. And also, these are not fun things to tell people. But I do think some things you can fix with time and money, and some things are really hard to fix with. If people just think, hey, such and such company has won the category or has the dominant model, I don't know how you change that in 18 months with 2 million bucks.

And I think it's a difficult thing for investors to acknowledge because it means that everyone around the table was wrong. That's why investors don't want to say it, partly because I think they struggle specifically with saying really transparent things that would benefit founders, but also because then it puts them in the hot seat.

I've told a few people we were wrong together. Yeah, we all, like you and I, both thought the world was going to go this way or this would be what mattered. Or, you know, we, we have a portfolio company that had sort of on an Apple policy remaining in place for a long time as part of their business model. And I was like, it seems very unlikely that that policy is going to get reversed because Apple has kept it for a long time. And we were both like, that's the big existence. And that policy is in the process of being unwound. And the founder is like, well, this business is not nearly as interesting in a world where that policy is unwound. And I'm like, I agree with you.

Yeah.

And I think the other thing I will say is sometimes what I've told people is the right answer is you go into these things with a set of beliefs and hypotheses, and if you're wrong, it's o to just shut it down and return the money or just shut it down if there's no money to return, you don't have to do some YOLO pivot. You don't have to try to scrape and find something. It's actually okay to just be like, look, the conditions that needed to be true for this to be a good idea are no longer true. I recognize that. And we're gonna go to something else.

Yeah. Well, for our last topic, Bloomberg reported that the U.S. justice Department launched an antitrust investigation into Google's agreement with Character AI, the rising chatbot company known for its AI powered character emulation tool tools. The deal struck with character AI happened in August of 2024 and was valued at $2.7 billion to essentially buy out the existing shareholders, founders and other investors. And in exchange, Character's AI's original founders who were ex Googlers were rehired back to Google and Google obtain a non exclusive license to use character AI's tech. So regulators are probing into whether the deal, which is a non exclusive license bundled with talent acquisition, was structured to bypass pass formal merger review while still giving Google an unfair edge in the AI ecosystem. The investigation is part of a broader effort by the DOJ to ensure big tech doesn't consolidate power in the fast moving AI sector, especially after recent court rulings against Google in search and ad tech. The ruling on these Acquihire plus license deals signal a new playbook for incumbents and a precedent for rulings against similar activities in the future. Charles, thoughts on if you see these hybrid licensing and hiring deals as fair competition and how should right regulators be thinking about this? And honestly also AI founders who are building in this space too when there's like no equity changing hands but significant IP and Talent do.

I just felt like I've been calling those things the Aqua license. I won't impute. I don't work at Alphabet. I don't know what went into the decision. All disclaimers Amazon has done a couple of these. These just feel on the nose. These just feel like a way to acquire talent without tripping or running afoul of the DOJ's desire to look at tech consolidation. And I was just like these are going to get investigated. I don't know whether that was the intent, but if you were looking for the least charitable interpretation, you would say these were designed specifically to avoid. And for all I know that's not what happened, it's that they wanted the talent and there was a set of people at that company who wanted to continue with the original vision. And this is just a very expensive hiring bonus, including some compensation for the original investors. But I just remember when Those came out. I was like, you do a couple of these and someone's going to ask questions. And so given the amount of legal and regulatory scrutiny that Google has been under and the purchase price or the license price, I have to believe that real work was done by Google to make sure that there's an underlying logic and that this should stand up to scrutiny. But we're going to find out.

I read the piece and then read other related articles and was like, yeah, I assumed that this was going to happen. It's all in throws of the AI arms race. Everyone's trying to get an edge over the other. It's an, it's an adjacent thread of thought. But over last week when Google kind of released all the different AI products that were launched, I felt like I probably watched or imagined a bunch of AI founders be like, my entire business was crushed in seven hours, basically. It's funny though, for something like Google, the amount of money that you would need to just stand up your own versus just buying feels not that much money at all. So it's fascinating that they're going down this route at all.

I also think it's interesting to me that so much of this is also narrative and vibes. I think people for a long time been like, there is no way any of the incumbents can be real threats. It's anthropic, it's open, it's Ms. TR. And Google's products are getting better and their products are starting to show up in interesting places and they've got distribution and I, I wouldn't count them out. I really wouldn't count them out.

We have more to come there. We are out of time today. Thank you Charles for joining. Thank you to our listeners for jumping in. Please like and subscribe and we'll talk with you all next week. Thank you.