a16z's $20BN Fund & Founders Fund's $4.6BN & Why Josh Kushner Has Mastered the Game

The Thrive strategy was brilliant. Buy the best property on every block. It's like monopoly, fintech block strike, tick, it's in the OpenAI block tick, infrastructure block, databricks tick. Then you just go home when you're done and you wait for the checks to roll in. It's genius.

Why struggle to pretend you can do 8x over 20 years on a seed fund when you can just write one big check into a winner and call it a day and achieve liquidity in a quarter of the time? The multiple will be lower, but the absolute return will be higher. Like it's so stupid. Like it's for suit is for suckers.

Ready to go. Jason, Rory, I'm so excited to have you here. I was thinking, who are the most insightful venture investors that I can bring together to discuss today's news? Sadly, Bill Gurley turned me down. So thank you so much for joining me today, guys.

What was Chamath doing, by the way? Was he turned you down too?

He was teaching Larry Summers about economics.

So I see.

It's going to be vicious. I love it.

Since we have you, Harry, go on. But I want to know why these billionaires are so bitter on Twitter. I think Rory will have an answer for us here.

I don't know.

Bitter, I mean. Well, first of all, you must be bitter. If you bought this product four months ago and said they're really smart and really intelligent and they're going to run the country really well, you must feel like a bit of a buffoon. And. And when you feel like a buffoon, you've only got two choices. Double down and bluster your way out or fold away quietly. And billionaires tend not to fold away quietly. So they're just going to bluff their way out and say this is all.

Part of the plan.

It's a tough look, by the way. It's a tough look, but whatever. I think what it shows is just because you really understand one domain, investing or technology, it doesn't automatically make you understand a totally different domain, politics. And I think you're just saying, look, it turns out raw IQ is not transferable and you can't walk into a different game where people have been playing it for 20, 30 years and think you're good just because, hey, you're smart.

It's so interesting you say that because I'm actually just really. I wanted this to be a very free flowing conversation. We just released a show the other day with Victor Lazarte from Benchmark, a GP at Benchmark, and he said the generation of SaaS investing before is dead. Spreadsheet SaaS investing, where you look at NRR, you look at growth rates and you know, you can reasonably predict good quality companies. That's dead. Nabil at Spot said the same. Is the way that we've invested now dead. And do we fundamentally have to change all of our rubrics?

Rory, you've been thinking about, actually, you know, when you and I first met Harry, when Rory I first met, he was the first guy that really opened my eyes to, to this question of SaaS metrics. And I met Rory. I think the first time I met him was at like the first upfront summit in like 2013. Okay. And I think that was the first time I met him. I might be wrong, but I think so. And I asked him what a good SaaS startup was because I didn't know at the time I'd done pipedrive in Algolia, but I didn't know I made this when I worked at this other VC firm. We didn't have a consensus what good growth was. And he said 1 to 10 and 5 quarters or less is S tier 1 to 10 and 5 quarters or Less. And so that's, that's that. I, I think I, I copied that with attribution. I, I use that as my investing yardstick for years.

Right.

And then he's done the Mendoza Line. Right? But then I'll, I'll say one thing and then I'll shut up. And then I think in late 2020 and 2021, it seemed like every startup met that. So like literally I had two startups in my portfolio, two of them that a vc, all three of us know really well. One of the best cloud VCs he offered them. I remember term sheets at high nine figure valuations without talking to the founders, just, just immediately in late. Because you only needed a spreadsheet in late 2020, early 2021.

Did you.

If you're growing 20% a month at double 10 million in ARR, you didn't actually need to know what the company did in SaaS for a while. Right. And so I think that is dead. Right. I think, not knowing, maybe it's true in AI today though.

So the answer is, yeah, it's done, but. And the question is why and what's actually done? I mean, it's. Yeah, I think spreadsheet investing is one comment and then SaaS is another comment. There were two proper nouns in that sentence. And you know, it's true that first generation SaaS investing has, is definitely. I don't know if I'd say done, but you've hit a plateau in terms of that. There was a 20 year period where it's pretty obvious what to build and you built it. And because the broad direction was obvious, all that was left to analyze was the math. Right. It was pretty clear the direction of travel was take X, move it to the cloud compound for a long period of time, get a great outcome. Pretty straightforward. So the only thing you have to do was actually very simplistic, evaluate the relative growth rates of different things and pick the thing that's grown the most at the most efficient level. And There was a 10 year period where these companies didn't change. I mean, I invested in box in 2010, it didn't change and anything. Jason and I, we competed in the Signature Market, DocuSign and Echo Sign. The thing that we invested in in 2010 was the exact same in 2024. It's stunning. So there was no conceptual thinking about, you know, what should we build next. It was just like, build this thing and sell as much of it as you can. And that's done now, right. In two ways. One is in the existing markets, they're saturated. Two things happen at the same time. The existing market, saturated. So all the growth rates flattened out. Right. So you know, anyone who needed a Zoom account or a DocuSign account has a DocuSign account because they all got them in Covid. Right, we're done. Right. At the same time, these new AI startups took off where Jason and I were just chatting on this. Unlike the SaaS thing where, you know, stuff was the same for 20 years, this shit changes every. I can say shit, right? Yeah, this shit changes every six months.

Right.

It's like literally I've had companies acquire and lose product market fit two or three times in a two year period. It's terrifying, right? So it's way harder now. I mean, when it works it's way better. But oh my God, it used to.

Take you five years to follow the product market fit. Now it can be five weeks.

Absolutely.

For real. That's not just a catch line. Like literally when we started, when all three of us started, I mean, Harry, you were, you were dropping out of school, but literally you could count on if you hit product market fit and you had a decent team, like there were exceptions. You had five years.

Yes.

You had five years to run and you had to reinvent yourself around year four to five. And you can't count on any of that today, can you?

And the reason for that is what, what has changed that has made product market fit a very transient and fast moving thing, rather than something that you held for reasonably long periods of time.

Probably two things. One is model progress, probably has something to do with a very deep level and it's the things what you can do gets better. And then the second thing is we're still at the figuring out stage of what you can do. Right? I don't think, you know, I think even absent model progress, there's a lot of, oh, we thought they would do it this way. And you fast forward six months and it turns out, well, they do it this way for a few months, but then, you know, they want to do it a slightly different way. And in fact, if you don't add more value, the customers say, no, I can do something better somewhere else. So we're in this exploratory phase, which makes sense that it's changing, like, because we're not yet locked in. I mean, I remember this period from about 99 to maybe 2002, 2003, where what a SaaS company was, was changing. I mean, you had Salesforce nailed it. But before that there was this MSP weirdness and it wasn't quite sure what a SaaS company should be. And I think it's the same thing here. It's not clear how. And it's much harder here because instead of just automating some back office shit, you're really trying to automate the head of the worker. Like you're, you got to get in the head of the sales rep or the SDR or whoever you're augmenting and assisting. And just figuring that out is really hard. And then it changes as the, as the AI can do more.

I also think we were talking before we went on about a hot AI SaaS company where literally the team was all on Adderall. And it was joke, right? It was true, but a joke. But I actually think in SF today, most of the startups we work with are in Adderall. Not literally necessarily, I don't know, but literally the amount of all the best startups I've invested in are working 7 days a week, 12 hours a day. In the office. In the office, 7 days a week, 12 hours A day. Now, it is true, as they hit super scale, they're. They're being more flexible for folks with families and more heterogeneous, but man, and everyone is working 7:12, right? And it's a vibe. And you can make fun of vibe coding and vibe moding, but when, when your competition in 20, 21, I mean, people are working 10 hours a week from home. Guys, literally, they were working 10 hours a week. Okay? Now your competition is working 100 hours a week for real, not for fake. Like, if you haven't evolved, you're going to die, right? Especially when you can add AI on top of it, you're going to die.

I just want to try and go back to product market fit being so transient. Because if product market fit is transient and revenues are highly unreliable or unsustainable, as we're seeing with your Gen AI companies that scale to 20, 30, 40, 50 million very quickly, but with a lot of potential sugar high if we've got revenue. Unpredictability, PMF unpredictability. What are we underwriting?

Yeah, I want to know what he says, because I don't know right now.

You are. If you're not understanding that you're underwriting more risk, you're missing the movie. You understand you're taking on more risk. What you're underwriting is the upside. You know less at every stage. On every check you're writing today, you know less than you would have known 10 years ago at a similar stage. SaaS company, a lot less, a lot more things can go wrong. But on the other hand, the upside is there and it's huge. You're just taking on more risk for a dollar of revenue.

Is the upside there? And it's huge because the prices are inflated much higher than they were 10 years ago. It doesn't feel like you're getting paid for the risk that you're taking.

Well, disaggregating that, because again, you inject a price into the equation. At the risk of channeling Monty Python as a reference to the Holy Grail, but I meant leaving aside price, in other words, do I think the outcomes of these companies can be huge and arguably even bigger than some of the SaaS companies?

Yes.

So, quote, the upside is there. Now, the worst of all worlds, as you say, is if you've got high product market fit variability, high risk, still good ups, big upside, but then you pay up so much that even that upside has been competed away, then it's. Then it's a soccer bet. And yes, that would be bad. Right? And some of these questions. And look, that's the turn. It's a very scary time to play the game today, right? I mean, we all do it because we enjoy it. But every time you're writing a check today, you're going, I know, a lot less than I did on some of these other Things and paying a bit more. The upside is amazing. Oh my God, look at that growth. But we've seen companies fall off the growth track, you know, in six months. So it's, it's pretty scary. It's a, you know, turns out making a lot of money is hard.

Rory, do you think we're going to have inventory? Think we'll have more bimodal results where a lot of funds will just be massive underperformers because it's hard to assess the risk properly?

Yes, by definite, I think and for two reasons. And we'll talk about one is each individual deal has more risk in it. And then on top of that, the whole totally separate thing, the holding periods have elongated. Right. And every year holding period elongates, one of two things happen. You roll the dice and if you win, you go up 30% and if you lose, you go down 50%. If you roll the dice three more times, by definition, one company will go up 2x and the others will go down. So yes, it's going to be, I mean portfolio construction really matters here because you're in a riskier game for a longer period of time. And yeah, some of you are going to make it, but a lot of you are going to not. It's. Yeah, it's scary.

I mean, I had Victor from Benchmark on the show and he said that portfolio construction doesn't matter. His first check was 8% of the fund with $55 million into. Hey, gen.

Which was.

I thought a lot. Jason, we've spoken before about percent of check as a percent of fund. Two three standard eight is a lot. And he said that bluntly, they can raise whenever they want to at will. So $500 million fund can be deployed in a year. We saw KP deploy a fund in 12 months. I guess my question to you is if you're a brand name firm that can raise on demand, does it matter?

I think it always matters somewhat. People actually lose money. I just think from thinking about losing money, particularly when they lose money two funds in a row, even a brand name firm can hit a bump. I think someone as amazing as KP and Benchmark, no, I never take it for granted that you can win the next that you can raise money. Because I'm sure Jason has had the same experience too. I raised our first independent. We raised my partner, Kate and I raised our first independent fund in 2009. And we were in the Lehman and AIG offices the day went bankrupt. And it turns out they didn't need to add to their Exposure of private illiquid assets that week. And, you know, I never take it for granted. It was damn hard. It took a year to raise that money. So probably true for Benchmark and KP, probably not true for the other 898 funds out there.

We were talking just about kind of like, hey, we see the growth, and the question is, are we getting paid for it? What about the normal SaaS companies? There are thousands and thousands of SaaS companies that will listen to this and be going from 1 to 3 million an hour, maybe 1 to 4.

And that was kind of good.

In 12 months, it was. It was decent 4x year on year.

It's so great in any, in any normal world. It's a great. It's great, right? It is great. You're still elite.

But can they still race the companies that are doing triple, triple, double, double? It's not lovable, it's not bolt, it's not macaw.

I think they can, but I don't think that's the issue, Harry. I don't think the issue is can the companies doing double, trouble, trouble, double, double raise. I think that the tough issue. And because yes, because, yes, they can. If you hear the story and you go, yeah, that makes sense. It's a, you know, SaaS hasn't been made illegal. It's a totally good solution. It doesn't have AI magic pixie dust, but it solves the customer's problem. And the proof that it solves the customer problem is it's growing 3x3x, 2x2x. I would do that deal all day, every day. So let me put that out there. If you've got one of those, call me the real. And I'm mentally thinking of a deal I turned down two, three rounds ago that has done just that. And I'm an idiot. Right? The real problem with SaaS isn't what you just said. The real problem is they're not trouble, trouble, double, double. Right? The real problem with SaaS is there was tons and tons of SaaS companies that have slowed down from exceptional growth rates. And 3x year, one year is exceptional. That are doing 50 million growing at 10% or 20% or 100 million growing at 8 or 9% or there are myriads of those. And that's where the real question asks what those companies end up.

Rory, just to follow on, I think all of us would do some version. Like for me, the triple, triple, double, double. I'm totally into it. If the CEO is amazing. Yeah, right. Because that solves for. Yeah, right. But I will say I remember it was kind of almost a chilling moment to me. Maybe 15 months ago, I got together with another top cloud SaaS VC I've known since inception that all three of us know, okay. And I got together with him and he said big fund. He said, I'm not, I'm only doing AI investing. And then I started asking other folks and here, listen, I don't have a survey you or you're better at this than me and everything I would say 70 to 80% of the folks I grew up with that were SaaS investors are not won't do those normal triple, triple, double doubles. You would and you are a top tier performer. But they're just, they're momentum investors and they want to put 200 million into the latest AI deal. Right. And triple it in eight months. They want to triple it in eight months. 80%. I would say they won't take these meetings.

Could be. But what about this? I've often found when people have a, when smart people are using a heuristic, there's sometimes logic behind it. Maybe a more refined.