Are You Good at Asking for Advice? | Seed Rounds Are Broken | Family Offices Cutting Out VC

Particularly with our portfolio founders, I usually will just ask them, in the absence of this conversation, if I weren't available, what would you do? And usually they have an idea. Since you kind of know what you want to do, like, what do you want to talk about? Do you want me to push back on your idea? Do you want me to give you more options? Do you want me to like poke holes? This happens a lot with hiring decisions or termination decisions. And usually if I ask, what would you do? If the person goes like, oh, I would hire this person, or oh, I would pivot for sure. Sometimes the best thing you can do is just, what I hear from you is not a lack of conviction and clarity. To me, you sound quite clear.

It's the week of April 7th, 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 Goodread this week is a piece by Ashley Smith from Vermilion Cliff Ventures, written off the back of a TechCrunch article she contributed to on seed round pricing. The short version is that round names don't mean much anymore, and Ashley argues that they probably shouldn't. Pre-seed is sitting around $10 million post, seed is around $25 to $30 million per Carta data, but YC Demo Day companies were priced at around $40 million or more, and some seed rounds have been priced 10x that in the headlines. She traces the inflation to a few converging forces: large funds moving earlier and writing massive checks that distort the benchmark, and platform bet mentality where investors are pricing for the next AWS rather than the company in front of them. And lastly, what she candidly calls the YC tax. The piece is especially useful for founders with her core warning being that pricing your round too aggressively is one of the fastest ways to make your next round harder because you're not just setting a valuation, you're setting a bar you have to clear in the next 12 to 18 months. Ashley is pretty direct that the math stops working for smaller funds above a certain valuation threshold and that it's pushing funds like hers to back founders even early, like before product and sometimes before they've even left their job. Do you think that that's now a feature of early-stage venture or a bug caused by both the bubbled market and where we are right now just on valuations?

It's a great question. I feel like this post gets written every 5 years because every 5 years it gets distorted. And I think part of it is that a seed round is anything that people call a seed round. So there are no hard and fast defini— I mean, we have our own internal definitions, which I think are useful for consistency's sake. But whenever I read these articles, I think about there's two competing forces in venture. I say there are people who are price discipline believers who are like entry price matters and the price at which you get into a company does have a meaningful impact on the returns you can generate. And there are people who I think are much more focused, or I would say kind of outcome maximizers, which are that, hey, over time, the scale of winning companies gets bigger and bigger. So entry price is something that you should only worry about if you don't get it. And the answer is both. Like there's almost, you know, to date, if you invested in Anthropic at anything under $50 billion, which is objectively a very large number, You're probably feeling pretty good about your investment at this point. And if you invested in SpaceX at even crazy valuations, you still feel pretty good, right? I think the question is, does the presence of outliers change how you should behave on average? And your two choices are like, well, no, outliers are outliers. So on average, entry price does have a pretty profound impact on your returns. But when you're dealing with an outlier company, it doesn't matter. The reason that seed has this dispersion is different people are playing different games. Some people are playing a game where like, hey, on average, entry price matters because while there are outliers, the vast majority of companies are going to exit within the range that's known. There will be exceptions. And the question is like, do you make exceptions for exceptional companies? And there are some people who say, I only want the exceptional companies, and the exceptional companies are born into life expensive. So to me, this is the other question, which is, is there a correlation between entry price and exit price? And some people have done research to say, yes, the very best companies start off life blessed and expensive. They start off expensive and they stay expensive. That happens sometimes. And in other cases, companies start off cheap, become expensive, and stay expensive. And so, you know, there was that thing floating around with Brian Chesky where he was like, we were the most expensive company in our YC batch and that got done at $3 billion. So to some extent, if you'd ask me 5 years ago, does $25 million post-money valuation work for seed funds? I would have said no. And today I'd say, I think it does. What it all comes down to for me is I kind of have in mind multiple that I'm trying to underwrite. It's usually 200x price appreciation. Minimum on a new deal. And so the more expensive the company upfront, the more I have to believe that that company's going to be exceptional. And if at some point it isn't exceptional, it probably won't work. And as one of our LPs told me, he said, I don't really see much difference between losing all your money on a deal that you do at 5 posts and a deal that you do at 50 posts. You still lost all of your money. The difference is the amount of money you can make if you get it right on 5 posts versus 50 posts is pretty extraordinary.

And going back to how Ashley's approaching sourcing, and I know a lot of funds are doing this, we talk about this a lot. The amount of outbound that's happening cold is increased dramatically. It's an entire sourcing mechanism for VCs that definitely didn't exist years ago. And certainly outbounding people who, you know, still have their jobs at their current companies and haven't left and haven't become founders. From your standpoint, how do you kind of think about that as a sourcing mechanism to finding the best founders?

The one nice thing about outbound for a lot of VCs is you don't have to think about what are the incentives of the person who are introducing me to this company. Are they introducing me to this company because they're already an investor? Are they introducing this company because they're an angel? Are they introducing me to this company because they're somehow getting compensated? An outbound, you're like, I picked the company and I sent the email. I think the other reason you have all this dispersion, seed investing used to be something that only seed funds did, and most seed funds had the same fund size, returns parameters. And so you kind of kept everything in the same lane because all of the funds had the same constraints. And then when you inject in YC, you inject in multistage funds, suddenly you have a bunch of people who have different objectives with seed investing and have different tolerances for entry price. And so I think outbound to me is like another way for people to Ashley's point, to try to get in front of price appreciation. It's like, if I can find these people before they're fundraising, if I can find these people before other people know they're great, if I can just find these people early, then I've got a shot at getting access to them before the world knows how great they are. Then the question becomes like, well, what, what makes for a good outbound message? And I think sometimes it's the domain from which it comes. So if it comes from the domain of a fancy VC fund, I think a a lot of founders will pay attention. But I also think founders are getting smarter about outbound. They're beginning to understand what outbound is, that it isn't, that maybe they're not so special, that maybe they're part of a list or part of a scrape or part of a data dump that a VC got their hands on. And that's why they're getting this message. And I think in the end, what's really happened is the highly sought-after founders, for whatever reason, have more choice, more choice in whose money they take and on what terms and how much than they ever have had before.

Ashley does pose the question at the end saying like, should we just get rid of round names altogether? Just because the round names stop making sense when the benchmarks themselves aren't useful. From your perspective, what do you think in the land of pre-seed, seed through Series A?

I would say I would like to get rid of round names, but I don't think that's going to happen. They serve a purpose as a signifier. What happens now, though, is, you know, I will sometimes send the same message. I'll tell one person, hey, this company is raising a $2 to $3 million seed round when I know that's the round size that makes sense for their firm. There are other multi-stage firms that are like, hey, this company is raising a $10 million seed round. I wouldn't send the $10 million seed round intro to a firm that focuses on $2 to $3 million seed rounds because they'd be like, that's too big for me. It's also caused me to be a bit more flexible in both maximum round size that I'll consider and maximum valuation because some of the companies I'm interested in are not raising on terms that have historically made sense for us, but where I think those companies are good enough that the terms they're raising on will make money.

Well, our next topic is a piece by Oren Hoffman titled How to Ask for Advice Without Wasting Everyone's Time. And it's a really good breakdown of what separates people who get real useful guidance from the ones who leave every conversation with nothing. The core argument is that vague asks are the enemy. Showing up to a conversation with, I'd love to pick your brain, it's essentially asking the other person to do all of the thinking for you. Oren's rule is simple. If you cannot articulate a specific question, you are not ready to ask it yet. And before you bring something to a person, you should first bring it to AI because people should be reserved for judgment calls, pattern recognition, and lived experience you simply cannot prompt your way into. He also makes the case that advice askers should be surgical about who they go to for what, treating their asks like a portfolio across the people best positioned to answer each specific question. The piece closes with what might be the most overlooked piece of the professional etiquette: closing the loop. Telling someone what you actually did with their advice, even if you went a different direction, is what turns a one-time ask into a really long-lasting relationship. Oren in the piece makes this distinction between asking for advice and asking for validation and says most people can tell the difference within in 60 seconds.

Yeah.

So from where you sit, how often do you feel like someone comes in already knowing what they want to hear?

A lot of the time, particularly with our portfolio founders, I usually will just ask them, in the absence of this conversation, if I weren't available, what would you do? And usually they have an idea. Then the only question is, since you kind of know what you wanna do, like, what do you wanna talk about? Do you want me to push back on your idea? Do you want me to give you more options? Do you want me to poke holes? What, what can I do? This happens a lot with hiring decisions or termination decisions, or a lot of, a lot of these CEO-level things that the founders we deal with, usually they know. And usually if I ask them like, what would you do? If the person goes like, oh, I would fire this person or, oh, I would like pivot for sure. Then I'm like, well, then you sort of know. Then sometimes the question is like, well, what's holding you back from making this decision right now? It's like, well, I'm, I don't know, maybe give them more time, maybe this. And I'm just like, you sound pretty convicted to me. Sometimes the best thing you do is just, what I hear from you is not a lack of conviction and clarity. You, to me, you sound quite clear. One of the things I thought about Oren, Oren is a great thinker. One of the things I thought about in this post is during COVID during the boom of micro VC, small funds, I had so many people who were like, I want to pick your brain about starting my fund. And Mia, every one of these calls was the same hour. It was 59 minutes on choosing a fund admin and an LPA and LP targeting, and then 1 minute at the end on what made that person special and unique. So I basically just made a well, it's quite long, multi-hour long video series. That's video, text, or audio, whatever, whatever you want. And I tell people, hey, I'm happy to talk to you about your fund. I have these videos. I'm going to give you an hour. If you watch the videos first, we will have a much better conversation because we will spend more time talking about the things that are specifically of interest about your fund. If you don't watch them, I will still give you the hour, But this is the only hour you're going to get, and we're going to kind of spend it on basic stuff. And the other funny thing is I've had 3 people who've watched the videos and said, my conclusion is I don't want to start a fund. Listen to all of this. It sounds like it's not as much about investing as I thought. It's a lot more about firm management and fundraising. I'm like, great. Well, then the video served the purpose, which is we didn't even have to have a conversation. And I built that thing because I realized I was having the same conversation with people over and over. And I wanted to give people who hadn't self-qualified themselves yet a tool other than say, like, come back to me when you figured it out. I'm like, hey, here's something. I've put together seems to help people. You should check this out. And it's been a really useful tool. And there's a lot of, there's a lot of times when people will ask me, oh, I want to pick your brain. I'm like, well, what, what do you want to know? What's the thing you want to talk about? I've also found sometimes I'll tell people he has a point. And they're like, you wouldn't ask someone who's an excellent skier about the best golf courses in America. Sometimes people ask me questions. I'm like, I don't know anything about how to get into private equity. Like I don't, I might have a friend if you send me something. Qualify. I had one of these experiences lately that's like very much in line with what Oren mentioned. I was at an event and I met a guy and he's like, hey, I noticed, you know, a bunch of people I know at OpenAI. I'm interviewing there. He and I talked for like 5 or 10 minutes. If I sent you something, could you forward it on to your friend at OpenAI? I was like, sure, happy to. So he sent it to me and I wrote to my two friends at OpenAI. I was like, hey, I met this guy at an event. He seemed pretty good. We had a good conversation. He's applying. He asked me to put in a nudge. I forgot about it. 3 weeks later, he sent me a text. He's like, Oh, I got the job at OpenAI. I think what you did probably helped. I just wanted to like let you know I got the job. Same thing, I interview candidates for our portfolio companies. I always tell them like, even if you decide not to join this company, I'd love to hear what you decide to do in the end. I do the same thing. I try for every person who sends us an intro for a founder to meet, I always try to send them, here's the outcome, either we invested or we didn't. And if we passed, here's the actual email I sent to the founder so you can see what I told them and you can judge whether it was useful or not. A lot of people are like, oh, this is great. Thanks for letting you know. Most people don't tell me what happens with these intros.

One thing that you said also is the advice givers, knowing when you don't have something valuable to say and just saying that outright, just being upfront. I don't have a specific perspective on it. I think venture is notorious for people feeling like they have to have an opinion on everything or they have to be able to like nudge and find a connection into giving output. I actually think it, from being on the operating side, when you can quickly tell me I am not the right person to speak to about this, that's equally as valuable because then it makes the wild goose chase so much shorter.

Yeah. I certainly have people ask me questions or ask me about, even our founder sometimes, and the founder asks, they'll be like, does anybody know somebody at such and such company? I'm like, I don't know anybody at that German insurance company. I don't, sorry. So I do think in general, it's, it's helpful to be able to know your own, like, and also know the domains where you're helpful. And like sometimes founders are like, oh, I have like a product question for you. I'm like, well, depending on the product, I may or may not have a perspective on this.

He argues that the best advice askers treat it like a portfolio. So what I mentioned in the intro, they're really surgical about who they go to for what. Is there more a version of where you've seen founders get it wrong, more specifically around like maybe spreading too thin and gathering too many opinions? I'm thinking more specifically about like deck feedback when founders kind of reach out to like 16 different investors, everyone on their cap table. I just feel like we can be a little bit more strategic about who we go to for what things.

One thing that's worth remembering is there are some things that are highly, highly, highly subjective. Deck feedback. There maybe isn't an objective answer to deck feedback other than like everybody likes different stuff. And if you're going to ask a bunch of people for deck feedback, you should be prepared to get conflicting advice versus, you know, what's the right size option pool given my hiring plan? You're more likely to see consensus in that answer, if that makes sense. And so I do think it's worth understanding what is the range of allowable and acceptable answers for the question that I'm asking. And if it's a really subjective taste-based thing, you shouldn't expect convergence. I also always tell our portfolio company founders, I'm like, who on your cap table do you think is the best person? If you could only ask one person, who would you ask? You don't have to socialize everything with every investor every time. You can just decide, oh, these two people have good instincts on people. I'm gonna go these two. Oh, these two people have good instincts on fundraising. I'm going to go for these two people. Oh, these two people have good instincts on X. You don't have to socialize everything with everybody.

Our last piece is an episode from TechCrunch's Equity podcast featuring Mitch Stein and Ari Schottenstein from Arena Private Wealth. It's a Midwest-based firm that just led a $230 million Series B into an AI chip startup. In February alone, family offices made 41 direct investments, nearly all tied to AI. The broader trend here is that private wealth and family offices seeking other paths to access venture returns beyond being LPs and funds themselves where they're subject to fund structures and fee layers. They want direct exposure, they want ownership, and increasingly they have the infrastructure and the appetite to go to it. The conversation gets into what Arena is actually building, how they source deals, and what the due diligence process looks like when you're a private wealth firm playing in a space that institutional VCs have traditionally owned. Family offices going direct really isn't entirely new, but definitely the scale and speed here feels different, especially just on the podcast itself when we were listening. And certainly with AI as the magnet, which they flow through a lot in the piece, from your vantage point, does it feel like a structural shift or more of a cycle-driven moment in that everyone does want a more concentrated piece of the hottest thing?

Can it be both? It's maybe both a top of market activity and a change. You know, Megan from Altimeter, who I think has some of the best insights on LP stuff, was like, hey, part of the reason you're seeing this decline in fund flows to VC funds is LPs kind of know the 7 to 10 names. And Samir from Allocate's written about this and others The LPs know the half dozen to a dozen companies they really feel like they need to be in. They can get access to those companies directly. So you're like, well, why would I want to go invest in a fund and have to deal with the long hold period when if there's like a handful of names I really want, I'm like, well, in some cases you're paying with all the layered fees, crazy fees to get access to those companies. And I think in some cases they're like, I don't care. I just want to be in Anthropic and I want to be in SpaceX and I want to be in OpenAI and I want to be in DataBricks and I don't really care. And I think every time you have one of these inflection points, it happened in the Uber, Dropbox in that era too, but that was more secondaries than SPVs. And it turned out that in many cases, the prices that the last private money in paid were higher than the trading price in public. And so I think we're in one of those moments right now. We're going to, we're going to learn a lot if SpaceX and some of these companies go public as planned. We're going to learn very soon whether we got the pricing right and whether like the pricing of those is right. But I do think there is so much money coming into private assets. You're going to see more people running experiments and just saying, well, maybe we don't need to go the VC route, maybe we can go direct. And also me, I think it's worth mentioning some of these companies just have insatiable appetites for capital. And that's the other dynamic here. I think for B2B software companies, maybe other than Databricks, most of them don't have the capital needs that sort of would make going outside of traditional venture either necessary or attractive. But the AI companies need all the money they can get their hands on. So some of these new channels are actually coming online at precisely the time when these companies need access to new pools of capital.

I think that's a good call out because I mean, we've seen within our own portfolio family offices coming in and leading rounds for industries where investors on the institutional venture side have kind of fallen out of favor in that, and they're willing to take on longer holding periods for it. And they've been really strategic in helping them expand and grow and, and they are strong partners, but it just kind of depends, I guess, if you are the, the private investment or family office firm that's doing this, how much work you want to do to source the right deals. Yeah. Because there's different legwork required in each industry. Industry. I think with AI, I mean, there's a bunch of like really well-known family offices that if they wanted to get into any of the name brand companies, they could just because they were the, the name and the domain name of who they represent. The access is just as strong as a tier 1 mega fund. But if you're not that, I do, I do wonder what does that diligence process look like when you've traditionally done something entirely different and relied on institutional VCs to run that process and now you're, you're in-housing it yourself. And I know that in the podcast they did talk a lot about leaning on the co-investors around the table help them do the diligence. Wanted your opinion on that. What might be the pros and cons of relying too heavily on that?

You know, we co-invest with our LPs with some frequency in the later stage deals, and I think it's important that everybody understands what they're signing up for. I think the one thing is in a fund, especially in a fund with a larger portfolio, of course you lose a little bit of money a lot of times and you don't see it because the line items go away. When you do a concentrated investment in a single company, when it works, it feels great. When it doesn't work, it can feel awful because it's a concentrated loss too. And so I do think it's important that the new investing, understand that even late-stage companies can be bad investments in two ways. One, the companies can fail. That's lower probability. But second, you can bid them up to prices where it takes a long time for the companies to grow into those valuations. And right now, all of this stuff only goes up. Every time you've passed on a round for one of these companies, the next one's gotten done at a higher price. And that is the kind of dynamic that really pulls people in.

You would think family offices should be just up to date around like secondaries selling off positions as institutional VCs should be, or?

I don't think it's usually as important. I think one thing is I've met some family offices who are extremely sophisticated. They're LPs in the biggest and best funds. They're close to the GPs in those funds. They've met the underlying companies themselves. They have a point of view. They're effectively like a VC fund without a brand name. I've met other people who are like, oh, I did some diligence on this company with a GP of mine who's not an investor in the company and doesn't have any additional insights. And I'm like, well, I'm not sure that that is as valuable as, you know, the most sophisticated family offices we work with. With could do this job. It's just like they have a million other things to do too. So they pick a handful of managers that they trust. And when those managers come to them and say, I have a company that's really working, they pay attention.

Well, we are all out of time today. Thank you, Charles, for jumping in. Thank you to our listeners for jumping in as well. Please like and subscribe, and we will talk with you all next week. Thank you.

Bye.