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

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

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

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

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

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

Not not intentionally.

Intentionally.

Although. Although, yeah, as it happens, that probably is what a big proportion end up being. So it's a good question. So here's my advice for this particular phase. So I do think start most startups are going to do multiple seeds. You know, one or two, you know, two, two seeds is, is more like the average than the outlier these days. Or a pre seed and a seed or a seed and a, you know, seed plus. But my advice to companies is have a plan and an accelerator plan and when you feel like you can get on the accelerator plan, then it makes sense to sort of ramp burn and kind of go off, go, you know, kind of jump off the bridge a little bit such that you kind of need a series A or at least more funding to, to go and make sure you have a pretty concrete sense of what accelerated metrics you can hit in doing that. But have a base plan that allows you to survive for those three years and take enough money if it's available. To you to, to be able to run that plan so that you're only sort of like hitting the gas accelerator when you like have, have, you know, whatever 80% or greater confidence that you can show a return on that such that you'll get a. Get a series A done. We're going to talk about the rest of this is actually about like what it takes to get a Series A done. So but you, it does require you to jump kind of believing you will get there. Yeah. And I think once you have 80% confidence in that you should go for it and you know, 20% of all cases you won't. And that's, that's a trade off that's worth going for.

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

World gets lumped together. Yeah.

You don't care. Right.

All gets lumped together in one line in the captivity. I mean usually, I mean there's obviously lots of ways to do it but it's usually all the seeds convert into, sometimes they even convert into series A so it's not even a separate line at all. Nobody cares, nobody will remember there's no signal here.

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

You might have to sell more of your company like you said. But, but I mean, I mean I'm, I'm not, I'm a founder of a different kind of thing than, than a startup. But like I would think like if you have the opportunity to go for it, put yourself in the best position to do that and if that does involve a couple different seed rounds, do it even if you have to sell more of your company because you have that opportunity to go for it. Yeah. Make sure you have the confidence level. But no, nobody looks back and, and docs you for more. In fact it's like I think about it like you know, before you go to, you know, college or before you go to high school, your transcript like doesn't Matter, you know, like I have a kid in middle school and it's like, okay, now it counts. Before it didn't count. It's like before it kind of didn't count. A little bit is a little bit of the analogy there. Once you are Series A funding, then it kind of does matter a little more. I mean, there's ways to extend that even too, but it's a little more penalizing and that people are going to kind of look, oh, you series A funded five years ago, what did you do with that money? You know, kind of thing. Whereas on the seed, those questions don't get asked as much. Okay, let's, let's keep going. So we were talking about lots of companies being stuck at the seed, which is, you know, talk about sort of how to get unstuck or what we look for to get unstuck. And it's across all industries, right? This is sort of all the industries we don't invest in biotech. But all the others, you know, there's obviously a much less percentage of companies are making that graduation now. Again, some of that is companies living with their seed money and actually getting to great outcomes on that, just. Which is not, not a failure. Right? That's fine. But you know, some of it, I think people feel the, feel the pinch and feel the squeeze of, of not getting to that next milestone. And here's why. If you look at the uptick that happened from Zirk era, you know, so, so figure sort of 20, 20, 2021 in the middle of that graph. And this is just the number of rounds, but it's like correlates the number of companies. The seed count went up more than anything else, you know, proportionally and by number went up from whatever. If you look at the 2018 line and it's 900 went up to 2000, that's another 1100 companies that got funded relative to baseline. And that's, you know, you know, two, three times. No, sorry, that's way more than, yeah, two, three times the number of companies that would have been funded. More companies got funded at A and B2, but like a much lower number. Even proportionately those, those upticks are, are more muted. And so a surge in series A investments hit a, you know, a much more stable methodical series A market, even though that went up a little bit. And then of course, we had the sort of 2023 era where people, I think, were digesting too many investments that they just made. And so the numbers in absolute terms went down. Now, I think 2025 will go, will go back up, but not to that 500 number that you see here represented for 2021. So you're still having, you know, too many companies kind of meeting a more stable market. And people talk about the Series A crunch. These are some tweets from last year where, you know, perfectly companies with like, very good, perfectly reasonable metrics having trouble getting funding. And of course there's this feeling that like certain rounds are very hot, have no trouble at all, and have 19 term sheets. So why is that happening? And some of these other companies, companies are, are, you know, are not able to hit those milestones. So. So let's dig into that. So. So Jason asked me the, the prompt that I figured I'd start with, which is like, what is actually getting funded these days? And obviously a lot of that is AI and ML, you know, AI type companies, companies that have an AI primitive as part of it being the bright spot. Now actually, that's a little bit misleading because I think every company is fashioning itself as an AI company in some way. And so it's a little more nuanced than just saying AI is getting funded. Everything else is not. Although I think from the outside in that that sort of is how it looks to folks. Certainly companies that take advantage of the latest technical trends or are part of enabling them, of which large language models, generative AI are as massive as you can massive, a technical, transformative technical trend as you can have, are going to do better in this era. And that's why you see the, you know, the deal counts and the absolute numbers for 2024 as high, well, maybe not quite as high as 2021, but by, maybe not quite as, as much by dollars. 2021, but like pretty, pretty close, like almost right back up there. And that's of course, you know, all the foundational models enabling a whole bunch of innovation. And so digging in a little bit broader. This is sort of my translation of what I think is getting funded these days. And it's a little more nuanced than just saying AI. I think it hits maybe at least two or three of the five of the four first bullets on this page. And then you're seeing kind of a deal chase mentality happening with investors years. Momentum's super strong and it's clear it'll continue. So it's not just like sort of, you know, a lot of the companies that come through accelerators, you see like, you know, momentum during that period. It's like this is sort of feels like sustainable momentum. It feels like, you know, there's something real here that's just going to like propel this company forward. It hits a forward looking theme. Now that's directly kind of in the AI AI realm and customers are buying because there's a lot of companies you hear that hit the theme, but they haven't quite found a way to productize it or sell it yet. Those deals are tough even though they're AI deals. And then finally, and this is most important one for me is like you hear raving customer reviews and current customers are buying more, more and more until you hear customers just in love with it. And then you can see it in the data that you know your earliest customers are buying more and more, you know, assuming they're, they're good fits for your icp. And of course, you know, founder has a unique compelling vision, is always will get investors excited and they can really articulate it well and kind of, kind of captivate the audience with their, their view of how the world's going to evolve in some way. And so it hits the theme of a moment and it solves a problem and you have willingness to pay. That's like the goal that, that those deals are like, you know, very, very in demand right now. But I think even one or two of these is enough to catalyze a pretty good round with a clear articulation of vision by a founder and a good description of why they're raising money and what the, and more importantly, what the money is going to be used for. So what before we get to that, one other question that, that Jason asked me to address is, you know, why are there a premium for AI and why are certain rounds hotter than others? I think we to some degree kind of talked about that second question already. But the first question about the AI premium. So this is data I had ChatGPT pull using deep research because I hadn't actually done this analysis before, but I sort of assumed it would, I kind of guessed how it would come out. And if you trust the data source, I did dig into the actual data sources that ChatGPT used. So but if you trust those, and they all seemed incredible and legitimate. There is an accelerating premium for AI, which is kind of interesting as you get deeper into the company life starting with like, oh, okay, a 20% premium for seed kind of escalating to a 60% premium in the Series B. I think that makes sense if you go back to the bullets I used earlier, these ones because by the Series B you have raving customers, you have net account expansion and you have momentum. And so it's not just an AI premium, it's probably an AI. It's probably a premium for those factors also. That's kind of embedded in that. But it is interesting that the AI deals are actually kind of like playing out more or at least perceived to be by the time they get to the Series B and perceived to be by whoever's making those investment calls at the series, at the Series B. And then if you look at $, sorry, average deal sizes, so not. So the left is valuations, the right is average deal sizes, you see just a, you know, tremendous difference. I discount the data a little bit because I think embedded in there are a lot of just humongous funding rounds for like a couple companies. But it is an average and so that's going to pull up the average. But in every gradation here, the bigger rounds are for, are for companies that have this sort of tag of AI. And again, what I always caution folks is don't. It's not AI for AI's sake that I feel like should be, I mean, should be the most in demand companies. It's really should be companies where you put the AI to use for a discrete business or consumer problem. You've articulated how the particular, you know, the way you've built your product is going to solve uniquely that consumer problem, the consumer or business problem. And then ultimately you can demonstrate it, you know, at the Series A, we look for a little bit of demonstration of that in terms of customers saying, yeah, this, this works like we're using this and it and it and it completely works. So that's my best attempt to answer Jason's kind of prompt coming into this about an AI premium and what's hot and what's not. But it does feel, I imagine to folks a little like this. It feels this way to me sometimes too that the market's becoming more binary. And what I mean by that is just why are certain companies have no shortage of investor interest and others have trouble getting the attention of investors. I'll say for our standpoint of chemistry, we actually have a term sheet out now to a not AI company that's like there's no big kind of enabling moment for it around AI that we think is super incredible company that's kind of demonstrated amazing things in its market. And we tend to go back to first principles when we look at potential partnerships with entrepreneurs and founders and is there a business problem to be solved? Is this company solving it? Is it unique? Does it have a ton of competition or has it done something that other people have not achieved? And do they have raving customer love? Especially in developer platforms companies where I invest, the raving developer love is something I would never trade off. So I'm, I, I, despite what the data shows, we're open for business on all, on all fronts.

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

Literally.

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

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

And they were right for a while.

And actually they were right.

They were right, right?

Maybe like a quarter will be bad. They're like, no, no, this is, it's just so predictable now. And yeah, and to Jason, that was a sign, but still they weren't. And when the market changed and people got a lot more discerning about what they bought, and so that's obviously all Baked into this. I think you're right to sort of like lop off the parts of the chart that are like 2020 to the beginning of 2022 because it's just so anomalous relative to how hard it generally is to have startups achieve those kinds of growth rates. So I mean that's just, that's just not every day that you see that. So maybe Jason, tell me if you want to address anything before but I was going to then move into the.

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

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

Yeah.

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

They're looking for more, right? Yeah, they don't even want. Those guys don't even want to take the meeting today, I don't think.

Yeah. Hard for me to say because it's like I'm out of the world of that.

But.

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

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

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

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

Investors never want to hear that.

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

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

Okay.

We have to diligence it. You know, it may, but, but I, I could believe something like that. All right, so let's dive into tips for a successful series A and you know, cut it anytime, of course, with questions. This is the first place I always tell folks to start. Really important and I think most people skip it. It's like, why are you raising money? And I think it ties to what we were just talking about. A lot of it was just sort of like, okay, yeah, I'm a seed funded company, It's a year or two later, I've done some things, now I want to raise. My next round is the worst pitch. And it's like. And the why has to kind of incorporate the next tip, which is the timing of it. Why is the now. And so I would kind of take these two together. But why are you raising up? But what are you going to do with it? And hopefully that's very, very exciting. The why that should almost, almost start there is like, you know, give people a little bit of a framing around product, business market and then immediately talk about, hey, we're fine, we've got this business that's doing this, this and this. But why we're going to raise capital is to be able to conquer the world in some way and you know, channel your, your inner. I don't know. Patrick Collison is very good at this. And you know, some of the iconic founders of this day. Jeff Lawson at Twilio, one of the first investors I was involved with at Bessemer, is really good at like why, why does Twilio need to exist? You know, he would show pictures of the telephony phone stack at big companies and how you could rip all that out and make a single API call and send a text message to confirm a package being sent or something like that. And so understand the why. And then related, as I said, is understand the now, which is just really about timing. And so this gets to some of the reasons that certain companies are really hot from the prior discussion that we had is the now often ties into the theme of the moment AI in some way. And so a perfectly reasonable pitch starts with, you know, we have a product that was not possible two years ago because large language models have made it possible to do X, Y and Z and be able to have a conversational interface for the application which allows non technical users to engage with it. I'm just, I'm making this up and now that's going to get even Better. And everyone, you know, everyone can, can see and believe that from their own use of large language models in their own daily lives. But it's going to enable all of these things that were not possible before and to be able to take advantage of that. We're raising capital to hit this sort of beautiful why, why statement. But the timing tends to be pretty important because a lot of times investors, either implicitly or subconsciously will ask themselves, is there a why now moment for this company? Why does this company make sense in this particular era? And sometimes we can't answer that and we'll still make an investment because it's just the, the product and the traction's compelling. But usually there is a why now moment. You know, there's connectivity to something, there's large language models, there's, you know, code gen that enables whatever that just wasn't possible even a year ago. And then, oh my God, now, you know, the whole stack for how we build software is changing and so this company can exist now. So I think I've beaten that one enough. So then craft the story. Good storytelling is hard and, but does tend to be really important for, for investors being able to kind of receive the information in a way that allows them to process it quickly and, and make a reason, judgment on it. Sometimes it's kind of hard to pull apart a story like why, how this company got started, where it is now, where it's going, even with really good momentum and all the checkboxes that I mentioned, if you can't tell, it just requires a lot more overhead for an investor to be able to process it. And so I always tell founders, you know, kind of think through the story, forget slides and data and all that, just like bullet point out. And sometimes I'll do this for our companies, for them, like talk about it in a real flow where you could really explain the history. The founding moment. Maybe there's a refounding moment or a pivot moment. There's a sort of first customer story usually or first sort of set of traction there leading to this moment that you are right now, which is like the midpoint, which is like the, you know, think about movies, they kind of ARC around the 82nd minute or whatever it is. You kind of want your story to like crescendo, to like the conflict point at the like 2/3 of the way through the pitch, that's like today. And then you move into the vision of where you're headed and what can happen and your projections for that and depending on how later you are if you're actually pinpointing, you know, revenue associated with things and stuff like that. So. But crafting a story tends to be pretty important. If you go too, you make it too boring. Investors don't get it, are less likely to get excited about it. And I can remember, I can still remember some pitches of, you know, just founders that were amazing at that. I mentioned Twilio earlier, just, you know, really amazing at, at storytelling and a number of other really good companies kind of have that same, you know, the founders just were, were, were unnaturally talented at that. Okay, be intentional. Now what does this mean? This means like run, you run the process. Don't let someone else do it. And that's maybe counterintuitive because it's because you know, you're getting interest from investors and you sort of want to, want to just be accommodating but think through in advance like all the elements of this. And again, I tend to think a more focused processes are better than like just talking to anyone and everyone that will talk to you. There's debate about that and like many different approaches work, but at least in the beginning, I always say, you know, be intentional. Have a, have a story ready, have a, have a plan, have a plan A and a plan B and go out to your, you know, a limited set of folks that you feel like you know well or can get to take the meeting that you think will be receptive to it before you sort of go blanket the universe now like the best laid plans always get a little derailed and you'll be open to the serendipity. If you get a note from chemistry, you should respond to that. I'm just kidding. But like be open to the serendipity of, hey, maybe in the process you will adjust your plan because a great investor you didn't know before surfaces and, and they would actually be a really good fit. But like at least start out with a sort of intentional, intentionality to it. And then finally, and this debate kind of spilled out into the open and if we have some time, we can kind of go into it a little bit that we have some slides on what, what are the metrics that matter, but focus on the right metrics. It can be. There's a lot of like shoving vanity metrics out there as a sign of something and maybe other investors will disagree with you, but that is credibility destroying, at least for me, when a metric is, I would rather be excited by the deeper dive than disappointed by it. And so I think you want to really be super intellectually honest about what your actual metrics are and what you think is achievable. And you know, it's fine to be bold in your projections, but have them be grounded. But certainly there are ways to spin your metrics that I think most good investors will uncover. We'll figure it out. And so I wouldn't suggest too much of an over reliance on vanity metrics, at least in this context.

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

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

So I think people got that wrong. If you call it out, people are going to get it. Just call it out. Just have a stack chart with that's why we have different colors and stack charts. You could have different pieces and then. And everyone's get, everyone's been around the block, they know that especially earlier stage there's different types and qualities of revenue. Right? Just call it, just stack it 100%.

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

Sounds.

Right on the main stage. Something like that. Amelia, tell the actual. So definitely go and see her now.

Ethan, let's be clear. We've been doing this for a while. Everyone's on the main stage. But you're right, like literally the smallest stage in the corner is. Oh, of course you're on the main stage.

It's on the biggest main stage there is. Yeah, yeah.

MainStage SM V7.T I n Y. You're right on. On the main stage. But yeah, it will be great, actually. We're all, we're all, we're all heroes of service Titan. Right? I mean, we all. It's a great. We talk done so much. It's great. Yeah.

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

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

What.

How do you nuance it?

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

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

So I think that's the bar now. That's right. Demonstrably true. I might come down a little from those numbers, but not probably by a lot today. I think what people are counting on, I hate to say it, it's another frothy period that's not going to happen tomorrow. But people have short memories.

Probably right.

Five to eight years from now, it might be back to crazy times again. Who knows? Historically, that's been the pattern. Is there's these moments of extreme excitement in the public markets for what's new and then they kind of close and then you have to be like an exceptional, exceptional company, you know, on the order of, you know, a service titan or stripe. I mean stripes. Not public or databricks or something. But you know those companies, almost extraordinary go public.

Yeah.

So I think. But, but what does that mean for founders? You definitely do not want your plan to be predicated on a market bubble. That's just. That sounds like a bad plan to me. And so you want to be ready for any situation and you want to have a strong business where you have enough funding to kind of run it. If you're going for an accelerated plan, which could make sense to the whole discussion we had. It could absolutely make sense to go fast. But you want to make sure you have a backup plan such that your default alive and I think the default alive terminology, I forget who coined that. Somebody around Y Combinator, maybe it was Michael. I think is a good framework for once you hit your Series A, you want to just have a plan to be default alive even if you're going for it and burning cash. Because the markets may, you know that markets you just can't pretty. You can't sort of on demand sell a company. There may just not be buyers, even if it's a great company. And so you have to sort of reflect that in your thinking.

Yeah. All right, let me squeeze one last one in and then, and then we'll break. Especially because you've done a lot of developer focused stuff that's been successful. Let's, let's talk for just. I want your thoughts on Moats in 2025. It took me a minute to really understand Windsurf and Cursor. But when I watched it rip through my portfolio and I watched my son pay for, for, for the first time out of his own pocket and he showed me what he did. I get it right. I mean and there's replit and there's lovable. But. But really the. So my. But. But you can switch like folks are switching. Right. Quickly. So there's a meta question about, about that. But as an investor, when you're a series A investor, when you see someone growing at the rate of Cody and Windsurf, or do you, do you just not care about Moats because you got to pick your jaw off the floor for growth or how do you rethink Moats in the age of AI?

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

Right. But, but we're betting on the upside, not the downside. Right.

So it still may be a perfectly rational move to go for that as an investor or a founder because you know, usually momentum continues. But, but I, I, I, I think in this era where switching costs are a little lower, you have to think more about what the lock in is. The way I evaluate it. Yes. Just to kind of come back to maybe a framing of it is love, developer love, user love though that's harder to ironically the like lock in of like oh, you're contracted for three years or whatever or you're, you've signed this or you embedded it in your technical stack somehow those moats are shrinking. But if you love something, they are shrinking. Yeah. And it's like, wow, like you know, the, the, you know, the cursor type reaction now, you know. And I think replit's pretty cool too that people's minds don't shift as fast. And so I, I, you know, the, the companies that grew really quickly because they sort of hit a narrow need need but didn't have love, those are more likely to have been disrupted by something else than where people are like I just love using this product. I, I can't think of a company where like the developer love or the user love is off the charts that then, and had momentum that then fell apart. I mean maybe there's an example somehow.

Probably, maybe you should add that to the KPI lovability at the end of burn rate lovability, you know. Yeah, well develop some sort of.

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

The classic old Twilio tagline. Ask your developer.

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

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

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

Do impossible to export that data. Do anything with it. Impossible. Right.

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

All right, we're at time Ethan. Thank you. This is great. Go to Chemistry VC to learn more. Just email in any deck. Just, just, just flood them with decks and meeting requests. Come see Christina. She's Saster og. She'll be at Saster annual with it really will be great. One of, one of our all of our hero company service titan which is one of the great leaders in vertical sas. They'll be together with the CRO so you'll see chemistry and everybody in May it's aster. And again, just, just, just send Ethan all if you're top 1% send them your deck today. Send him today. He's got 300 million to deploy. So thanks again man. Really appreciate the time.

All right. Thanks, Jason.