The State of Venture 2025: AI Bifurcation, Down Rounds, and Secondaries with Carta’s Peter Walker

Anyone who says we're not in a bubble is wrong. We are in a bubble. That doesn't mean that all these companies are going to fail or be useless. It just means that the level of investment and valuation is out of whack to the current cash flows.

Welcome to the Venture Capital podcast. Today I'm very excited to have Peter Walker on. So we have Peter Harris and Peter Walker. Peter Walker is the head of Insights at Carta and in case you're not aware, Peter and the University Growth Fund is an investor in Car Carta because of an introduction I made 10 plus.

Years ago, which we are very grateful for because we're huge Carta fans.

We appreciate it as well.

Does this means I am an unofficial University Growth Fund scout?

Of course.

All right, Peter. Well, I mean like we've been watching your LinkedIn content, it's fabulous. Our, our hope for today is that you can talk about interesting insights that VC should be aware of, that founders should be aware of, and bring it all together because like you have, like you are in the unique spot where you're sitting on all this data, all these cap tables, you have VC software applications, you have equity crowd or you know, you've got real data. So like, yeah, let's, let's hit it, let's do it.

Maybe useful for the audience, just like a tiny bit of context on Carta and like where this data comes from. So we started life as an equity management platform, meaning founders can issue equity to their employees, their advisors, their investors. Through Carta, we kind of track ownership for private markets that started in 2013 and we are now the sort of the default cap table provider for basically most of venture backed US companies. So we have, you know, at least half of venture backed US companies use CARTA to manage their equity and that today that's 50,000 startups on Carta in the US so that's a, a really sizable population to generate some of these insights. And then the other side of the business, the newer side, is fund management. So we actually help VC funds, and increasingly private equity funds too, manage their funds. Everything from portfolio valuations to taxes to audit to compliance, all the stuff that kind of sucks about being an investor that's not investing into companies, we help those investors kind of manage that, that process. So we have data from the founders on one side and the funders on the other and we put that together. And then my job is to just tell people what's going on in the market, which is a pretty amazing gig. I'm, I'm a I'm a lucky guy. So that's, that's a little bit about where the data comes from. And then we can, we can hop into what's hot in the market. We can talk about AI, like, wherever.

You want to take this.

Take it away.

Before we do that, just, I'd love to learn a little bit more about your job, like, and maybe like, some of your background. Like, how did you end up in this role and why? Like, like, what is your goal within, you know, what you're trying to accomplish?

World domination, first and foremost.

Yeah, of course.

I mean, it has to be said. My. Honestly, it's like serendipity is a huge part of my career path here. So I, I started a company right out in college, actually with a couple friends. And that went okay, but we, we kind of sold it right as we were graduating. And then I was employee number eight or nine at this tiny startup actually outside of DC for a few years that did natural language processing for media companies. So before we had ChatGPT, sentiment analysis and all this kind of stuff, and language was very difficult. Getting a lot easier now. So our product looks absolutely useless in comparison to some of the AI models today. But it was a fun, cool learning experience. And I did data analysis and marketing. And my, you know, my background is in economics, so that was like the two sides of my brain, just data analysis on one end and like, brand and marketing on the other. And then I had this amazing opportunity during COVID where I got on Twitter for the first time, which, you know, I don't know if that was a smart decision overall, but it worked out okay for me. And I just started putting out charts and graphs on Covid data that I could find, which was not very, you know, it wasn't really widely available to most people. This is March, April 2020. And then I got in touch with some journalists at the Atlantic magazine, and they were spinning up this Covid tracking project, and they're like, hey, do you want to come, you know, lead a data visualization team there? So for a year and a half in Covid, I was working at this startup. And then at night I would be like, working with all this Covid data. And that's where the idea for my job at Carta really came from, where it's like you have this data set that has all sorts of answers and stories in it, but it needs explaining. Not just once a year or once a quarter, but like, basically every day you can put out something new about this cool, opaque data set. And so I Made a list of companies that had such a data asset and Carta was number one on that list. So then I, you know, got in touch with the CMO at Carta at the time and sort of pitched her on this role and made the case that they, they had this amazing data asset and they weren't, weren't utilizing it correctly and, and she was amazing and kind enough to take a, take a shot at me. So that's where, that's where head of Insights came from. It's not like a very common job title I don't think out there.

I love that story though. You just kind of, this is what I love. I'm going to create something that's great.

It's. Yeah, I mean, a ton of luck along the way. Right. But the other side of it, which now there's little insights teams popping up at a lot of different startups and I'm super excited to, you know, we have like a little insights community, like a WhatsApp thread that we, all these insights folks talk on, which is awesome. But one of the things that is very clear about this kind of work that I had no idea about at the beginning was you can do all this content and analysis as much as you want, but you if in order to really have it be highly visible, it kind of has to come from a person. Like it's, we did it from the company account for a while and it's just really hard to make data nobody cares from companies like really go viral. You have to have a person behind it. So that was the part that I had no idea about and has been the weirdest part of, you know, the last four years at Carta's is a personal brand growth alongside the company. Data growth.

Yeah, well, and I think it's partly in your tagline, right of like you, you create stories from data and I think people like reading stories and stories have a, have an element of humanity in them that makes them interesting. Right?

Yeah, well said. Well said.

Awesome. Well, you know, I think we would love to dive into some of your findings and like what in my mind, like Venture has evolved so much since I started working in it like 16 years ago. And I feel like, especially with AI, it is like all industries like just changing incredibly fast. Love to get your thoughts on, like what are you seeing in the data as it relates to where are we today? Where are things shifting? Where are we going? Yeah, that makes sense. And I know that's like a super broad question, but maybe we start broad and go deep.

Yeah, let's do it. All right, so I'm going to lay out a little bit of data overview here just to situate us in the moment. So if you think about startup fundraising, and we'll talk mostly today about venture backed startups, I realize that's not all startups, right? You've got a ton of bootstrapping and really cool stuff happening on that side as well. But in the VC world in the US we have kind of a before and an after 2021. So before 2021 we were in low interest rate period, but like the amount of capital invested into VC grew year over year, but typically a fairly marginal amount. And it just kind of was a steady growth period. Then 2020, late 2020, 2021 and early 2022 was this massive fundraising boom, definite bubble. People were, it was all sorts of reasons why that bubble happened, but the net effect of it was that we invested a ton of money into a lot of startups at very high valuations and then interest rates changed in 2022 and a lot of those companies went under, are having to take down rounds, are just not nearly the rising stars that everyone kind of assumed that they would be. So that's the picture of the last, that's the, that was the last bubble, the most recent bubble. And it has major effects to what's happening now in startups. Because typically if you compare this to say the great financial crisis or the dot com bubble, what happens is you get this bubble behavior, something pops the bubble and then there's multiple years, maybe even three or four years of like difficult times, fundraising is hard and then things slowly pick back up. But what happened this time was that interest rates rose, popped the bubble and then there was about a year of decline like any other sort of startup recession. And then ChatGPT hit. So in the middle of this, what should have been a downturn, we had an AI revolution. And so actually in a weird way, I don't think we had enough of a downturn. And that sounds odd to say, but I think we kind of didn't learn all of the lessons that we needed to from the last bubble. Because AI is its own special bubble that is now very much in effect and it's, it's changing basically. Basically all of the metrics that we're going to talk about for startups. You have the AI hot companies on one hand and everybody else on the other and they're, those are two basically non overlapping worlds. Like the valuations on one side and the interest on the other are completely different. So it, it's, you know, you, if a founder is listening to this right now and saying, wow, Peter's telling me all these stats and that doesn't feel like my experience at all. They're probably right. It isn't their experience, you know, because there's like two sides to this really bifurcated market.

It feels like one side is still going through the pain. Absolutely. And maybe like, to a certain extent, like, it does feel, and I don't know if you're seeing this or feeling this, but it does feel like we're turning a bit of a corner and that, like, things are finally growing and like either companies have grown into their valuations or they've just taken the, the, the medicine that they needed to take, Right. And, you know, take the hits or whatever. But either way, we're getting to a point where we're starting to see liquidity. And I think about Klarna as like, almost like the poster child of one of those, because they raised at like, these incredible peaks and then, you know, went. Had a massive down round and just went public at like about a third of what their peak was. But they're out, right. And, and people are getting liquidity. Right.

So they made it out.

Right.

So that's a, that's a wonderful illustration of something that started happening in the last, call it, six to nine months, where it does feel as though we've kind of turned the corner from the 2021 hangover. There are 2021 darlings that are, either have gone public, have taken massive down rounds, have, you know, the, the phrase taking your medicine is, is often used here, but they're still in business, right. They're still growing. They're, they're, they've done what they needed to do on the financial side to put themselves in position to succeed long term. There are a lot of companies for whom they tried to do that and it's not working. So, and they, they're going to shut down. So weirdly, there will be more headlines about startup shutdowns in the coming months, but it will also feel like everyone that you talk to is fundraising at crazy amounts. Both of those things are going to happen at the same time, which is going to be confusing. But in general, I'd say that, you know, if you look at the metrics, some of the metrics we track for, what is the, what is a healthy ecosystem for startups? So first one, percentage of down rounds in normal times, down rounds, which is just, you know, your valuation at the round that you're raising ends up being less than the round that you raised before. So you, you kind of missed on that valuation. Usually that's about 10% of all the rounds on Carta today. You know, over the last year or so it's been 20%, but recent quarters it's more like 17 and like then I trip down to 15. So it's getting healthier. That's one indication.

And just to clarify, what time period are you using to say like normal times?

Just like as a baseline normal, you know, this is the 10% average is, is from like 2016 to 2018. Is that the most normal time given that it was zero interest rates basically, or close to it? Maybe not. But it's a low interest rate environment. So I do think that most people underestimate how important interest rates are to startups. They are, startups are not some separate economy that functions in their own way. Like interest rates are massively important to the way that startups work. So when interest rates rise, capital risky bets become more risky and capital dries up in vc, it happens every time. And then same thing with when interest rates fall. So we just had a rate cut of a quarter percentage point yesterday. I think that's gonna in, you know, open up a little bit more capital for startups over the next six months. No doubt.

Yep, yep. And people will take riskier bets and, and, and, and yep. And I, I agree. Like, just, you know, this is anecdotal, but I do feel like 16 through 18 felt like kind of normal environment. That makes any sense. You didn't have too much capital flowing in. You had a good cadence of New Deal.

It wasn't too easy, but nor was it incredibly difficult. So like one of the other stats about whether or not an ecosystem is healthy that we look at is something we call graduation rate. So how many companies that raise a seed round end up raising a Series A? How many make it to the next stage? And yes, of course, just getting to the next fundraise isn't success, quote, unquote, but it is usually the goal of most of these companies that raise venture capital. There's some of them that will get acquired after their seed round, but it's a, it's a very small percentage, so it doesn't actually change the numbers that much. So what is a good, what is good look like there in 2017 or so after two years? So you raise your seed round in 2017 and in 2019, how many companies have gotten the Series A? A good percentage in that case is probably something between 25 and 30% had gotten a in two years. It doesn't mean that nobody will graduate to Series A after two years, but it's a nice little benchmark about, like, how did that cohort do? That's, that was in the regular times, in the boom times, like in there are some quarters in 2020, some seed cohorts, where 40 to 45% of companies got there in two years or less. That's, it's too fast. That's like, it's a sign that capital is flowing too easily. And sometimes these companies and you, you know, you remember the headlines where you'd read about a company raising a seed round and then they'd raise their Series A in the same calendar year and you'd be like, what's. Or even like three months later, you're like, what's happening? Like, how much?

A lot of preempted rounds, right?

100. Which is, by the way, happening today with AI, although there's better underlying metrics. And then graduation rates got really hard. So if you raised a seed round in 2022, according to our data, something like only 13% of companies that raised a seed in 2022 got to a Series A after two years. So that is like after.

But within the two year mark.

Within the two year mark. Yeah. Apologies. Um, so that's, that's too hard. So you see this like going back and forth with the macro of what's going on in startups. And now for the most recent cohorts, we're starting to see those graduation rates really pick up again. So I think that as an indication of health, that's a pretty good one. You know, you want to see a decent amount of these cohorts get to the next round over a time period that makes sense. So in that case, down rounds are down, graduation rates are improving, revenues, insofar as there's good data on that, seem to be holding up or growing pretty well. So startups as a whole, they seem a little bit more healthy today than I would have said 12 or 18 months ago.

Do you ever bifurcate the data here and say like, this is an AI company versus a non AI company?

Yes, we do. Now that's a big question, right? How do you define an AI company, Peter? I don't know if you have a.

Good answer to that. Well, it's, it's like, you know, every company is a tech company thanks to, you know, Internet and software. And to a certain extent, every company will be an AI company if they're not yet. Right. But yeah, I mean, I think it's a great question. I think about it almost. I wonder if like maybe one of the easiest ways to just delineate a lot of it is based on when they started the company.

Yeah, yeah, I think that's actually candidly what a lot of VCs are doing and saying, look, if you began the company in 2023 or 2024, we assume you're using AI in a more native way and if you didn't, maybe you're calling yourself an AI company. But we kind of know that was bolted on, right? Yeah, that wasn't the core of why you started the business.

And then there are probably companies that, I mean they use AI, but are they really AI companies? So like for example, we're looking at a super interesting company in the Medicaid space, right? Of course they use some AI, but like, I wouldn't say that they are an, an AI company. So there's probably like some nuance there too. But yeah, it's a tricky, it's a tricky definition.

It's super. You know, you ask eight people, you get 10 answers kind of thing. We, so we, but we do try to delineate between AI companies and non AI companies. There's, I'll talk about a bunch of data on that. The, the point that we try to make, and this is very difficult to ascertain especially for young companies is is your business predicated on AI? So like if your business could exist without AI and you're just using AI to make it more efficient, are you an AI company? Some, some VCs say yes. If your business could not exist without these new tools, then maybe you're an AI company. But I agree with you in the idea that I'm guessing in about a year or two I'm going to stop reporting on AI companies. I'm just going to assume that I don't talk about JavaScript companies. Like I'm just going to assume you're using the latest tech, especially if you're a software business. And we'll go from there and then it'll be back to fintech versus consumer versus whatever. So this AI moment dominates the headlines. It, you know, we're including it in our analysis all the time but I do think it's going to be slightly short lived and I'm just going to assume that it's there pretty soon because why wouldn't it be?

Yeah, my guess is it's probably like AI enabled versus AI native. And then to your point, eventually everybody becomes AI native and there Are there.

Are examples of companies, I think Intercom comes to mind here, where the company itself was one thing pre AI and then has completely transformed itself post AI They're a little bit harder to find, but they are there. And then all of this exists on a spectrum of uses it, but it's not denominated. It doesn't like the company isn't denominated by AI, uses it a lot in the middle and then like totally revolutionized by this new technology and all tech, all software companies exist somewhere along that spectrum. What we do know is that investors like super hot on AI. Obviously we, according to our data, something like 40 to 44% of every dollar invested into software startups on Cardo went to an AI startup in 2025. That is a lot. I mean it's, it's kind of rare in startups to have this much of a consensus theme. Theme is that good or bad? I mean if, if AI, if promises about what AI is going to do to our world come true, then it's great. If, if people are overvaluing it in the near term, then maybe it's bad. But in general, you know, AI is the dominant theme for venture investing at the moment. I would say that VCS are a little bit more sophisticated than they were say in 2023 where it felt like you just needed to put AI into the pitch deck and you got a funding. It's not that way anymore but it's, it's definitely still the dominant theme across venture.

When did it become a theme? Was it with. In correlation with the chat GPT rise a hundred percent?

Yeah, we, the first time we saw growth in it would be like Q1, Q2, 2023. So you know, four months after the November 2022 launch of chat.

Yep. Do you ever look at parallels with the dot com. Because it feels like it was probably fairly similar. I've never looked up the data but it wouldn't surprise me if 40% of all deals that got funded in 1998 and 99 were Internet or Internet. Right.

I think Internet is the best analogy for AI in that we wouldn't talk about Internet now. We would just like what do you. That's so broad. Like what do you mean everyone's in full term and soon AI will be the same thing. And so I do think that's a, that is a useful point of comparison. We don't have great data in 99 because Carta was founded in 2013. So. But I've looked in some of them and I think it Makes a ton of sense. What it suggests, though, which is kind of worrisome, is, I mean, in 99, you know, you had Amazon, but you had Pets.com and Webvan and all the failures too. And so like, are we in the middle of wasting a ton of money on some of these AI startups? I think the answer is incontrovertibly yes. Like 100% we are. Anyone who says we're not in a bubble is wrong. We are in a bubble. That doesn't mean that all these companies are going to fail or be useless. It just means that the level of investment is out of, and valuation is out of whack to the current cash flows. And that's, that's kind of what we do in startups. You know, it's like a, it's a pretty consistent thing.

All right, Peter, so when's the bubble gonna pop? Like, when do I need to mix it all my positions?

I gotta say, the Oracle deal I think is like a pretty. That's a bubbly.

That is a bubbly deal.

We're gonna put 300 billion on our like projected cash flows with, from a company that is nowhere close to being able to pay that. And we're gonna debt finance. Some of it feels a little bubbly, but, you know, maybe I'm a luddite and I could be totally wrong about this. I feel as though the biggest difference. I'll say this about the AI bubble. If you compare it to the most recent bubble, which was crypto in 21, it is a hundred times more like, tangible. Right? Like these companies have real revenues. We can debate how durable those revenues are or whatever, or if they're going to. In the end, all the margin's going to flow to the foundational models. Like, sure, you can have those debates, but they have cash.

People are opening up the wallet and paying for value, which is why some.

Of these valuations, which we read about seem absolutely absurd, but the growth rates are also pretty absurd. So it's, it is a, it's like a back and forth there on, on. You know, I wake up some days and I go, this is the beginning of a golden era of startups. And I wake up some days and I say, I think we're going to be in trouble in a year. And I, you know, it just kind of depends on what side of the.

Bed I slept on it. I agree, like, it makes me a little nervous around. On the one hand you have companies, you know, like Anthropic was adding, like added a billion in revenue in A month. Right. I mean just for their stage and everything else. So extremely high valuation but also extremely high growth. But then I also worry that like if people start slowing, they're not seeing the gains in AI and they start slowing spend that creates this domino cascading effect because everybody's built on top of each other. Right? Yeah.

So then let's. You, you asked a, an interesting question off mic earlier where you were like, what are the, what are the sort of intersection points between where we talk about on funding and like what's happening in the real world or what's happening to startups? And I think one of the ways that you see this intersection manifesting is the distinction between fundraising and hiring. So this has been a big topic around startups lately, which is in every prior startup boom, hiring was basically one to one correlated to level of capital investment. As more money was raised by startups, they hired more people. That was definitely true in 2021. They hired a ton of people. Actually in the AI boom, that's the. There's been a decoupling between hiring and funding and part of that is because the funding is going to a generally smaller set of companies. So yes, funding has risen for the last call it 12 to 18 months, but it's gone to a comparatively small set of companies. Like it's more consensus funding and those, those companies are raising bigger rounds than ever. Hiring is not the same.

How are you seeing option distribution to employees in the AI era?

It's interesting because so equity stock options and equity is like a core part of every startup's compensation package these days. So we don't really see startups that don't offer equity anymore.

You know, my understand is more people are getting, more people are getting options, but they're getting fewer options more.

So everyone as of 2024, everyone at a Carta startup at least. Let's talk about small companies. So if you have less than 50 people, basically everyone at your startup gets equity. Pretty rare to have people not get equity that early stage. Not true. Once you get to 500 people, there might be some people in the company that aren't receiving equity, etc, but in general the early stage equity is part a default part of compensation. What's happened on the actual package size is that this is super weird. If you compare, let's take a level five marketer at a series A company. If that marketer was hired in the late months of 2022, you've got a pretty high salary and a very, you know, generous equity package. Generally speaking, if that Same person was hired at a company that same size to do that same job today, their salary would be maybe 4 to 5% higher. So hasn't kept pace with inflation, but it's grown a little bit. Their equity package would be 50% smaller.

Wow. That is in terms of like, like value or percent percentage ownership.

You. Yeah. So notional. I can talk for a long time about the ways that people screw up talking about equity because oftentimes at early startups people will talk about this in terms of notional dollar value when the notional dollar value is zero. Always an early stage startup because it's most likely you're going to fail. But it just, in terms of percentage ownership, it's 50% smaller. So and the reason why that is. And you're like, aren't we going through a boom? Like, shouldn't this be a bonanza? What's happened is that people, and founders especially have really internalized this stay lean as long as possible message. Some of that is because they didn't get funding in 22 and 23 and early 24 and they had to write capital constraints, breed efficiency. Some of that is because they are looking towards AI to say, what can we automate? And if we used to think we needed a team of 10 engineers, maybe we only need a team of six and make those people more productive. Both of those things are happening. So to put some numbers on this, In January of 2022 companies on Carta hired 73,000 people. In January of 2025, they hired 28,000 people. There are more companies on Carta today by a lot than there were in 2022.

And all those people are getting half what they used to in terms of equity. How much of that's driven by valuation? Because I would have expected it to be lower, but also because if you go to work for an AI company, the valuations are so much higher. So like the company's like you're getting like a hundred grand worth into your points, this notional value that really is worth zero. And but like in their minds they're like, oh well, I'm getting paid 200 grand, you know, salary comp, another 100 grand and this. But in reality they're getting like half of the percentage that they would have gotten in the company before.

So some of it is due to valuation increases. That's true, but honestly, it only explains like 20% of the effect. But I think there's, there's three things that are happening. First is as startups feel less need to hire less every single New hire is scrutinized more closely and has less negotiating leverage during their candidacy. So especially if you are not an AI engineer, good luck pushing your, like, option package higher. They'll be like, in 2021, it was pretty easy because you had three other offers, right? You're like, look, I'm pretty in demand. I'm a marketer, I'm a growth marketer. I know what I'm doing. I'm kind of in demand right now today. You're like, thank you for that offer. So the leverage has gone back to the employer. That's on the one side. The second point, the point that I think less people talk about is after these last few years where interest rates rose, your salary wasn't rising nearly as fast as interest rates, you actually felt the financial pressure a little bit more in terms of cash in the bank account. You are not generally optimizing for equity. Right. If you're going to push back on any part of the negotiation, you're going to talk about your salary or bonus or cash, and you're just saying, look, I'm treating equity candidly as it should be treated in many cases, which is this is an upside bet that I shouldn't take into account on any of my personal financials. That's, I think that's actually healthy. Although I don't want employees to get screwed with low equity packages. And so I think this is happening both on the candidate side and on the employer side. And the net effect of it, with fewer and fewer hires is for the general population, not AI engineers. Equity packages are just falling.

Yeah, it's interesting. Well, and I've heard too, I'm curious your thoughts on this. But like, like Cluli, when they went out to go higher, and I know they're very controversial, but I thought this is really interesting. They were like, we don't want old people, right? Like, we don't want your old experience, blah, blah. You don't know how to play the game. Today we want people that are like AI native personally. And so I, I also wonder too if there's an element of that of like, you have all these people that have a lot of experience and there's a belief, whether it's, I actually think it's a, it's a false belief, but that's probably a longer discussion that like, oh, the old way of doing things is not valuable anymore in the world of AI.

Yeah, there's, there's some indications that that's true at the earliest startups. You know, obviously, big debate in Silicon Valley right now about how AI native do you need to be? And if you're like coming out of school then you all you, you know, you've just been cracked on ChatGPT for the last three years and it's basically all you've known since high school. Maybe you're better suited to an AI native job than the older person. Although I gotta say, across startups like it's not like older people are not using AI. Like one in Silicon Valley is pretty, pretty super hype about this no matter what your job title is. So I think I kind of go back and forth on that. What's actually I'll be really interested to see what happens here. The debate about whether or not AI is taking jobs I think is one that we're going to keep having. My instinct is that it's not as though AI is causing massive amounts of layoffs today, but it might and probably is delaying new hiring as people stay lean for longer and try to do, try to automate more tasks. However, when you look at the AI companies that are flying curse any sphere OpenAI Anthropic, all the like names that people know as, wow, those are AI native companies that are crushing it, they're growing their team. It's not as though they're trying to be one person companies. Right? Anthropic employs thousands of people. So like it's, it's not the case that being an AI hot name necessarily means you don't hire more great employees. You're just maybe doing slightly less of a rate than the AI or than the hottest names did in prior boom.

Things was really eye opening to me is Klarna, which has like a lot of employees. The CEO came out and he's like, look, we're not, we're not firing anybody, we're not doing layoffs, but we're just not hiring either. Yeah, we, we don't have like, we're barely hiring for any positions right now because we're just getting so much leverage off of AI, which I thought was interesting. And they're still growing, you know, substantially. And so like it's if this to your point, it's not a lack of growth in terms of revenue and scale, it's.

Yeah, it's, I think the number one thing that I hear is that if you're at a small company in Silicon Valley and you say I need to hire this person to do X job, the thing that you'll hear back from your CEO or executives is have you tried AI first? Like what, what percent of that Job. Can you automate? Not no hiring. Just like be thoughtful about this. If you could automate this job, how would you do it? I mean if you still need the people, go ahead, hire the people like and so that increases diligence time on new hiring, it slows things down, blah blah, blah. There's like a lot of effect. The other, maybe the other intersection point that people are, are you, you we brought it up earlier in this conversation, the idea of liquidity and IPOs and all this kind of stuff. So what happens to startups by definition has to then happen to VC funds, but it happens on a delay. So what we see from our, you know, call it nearly 3,000 VC funds that we serve in the U.S. most of these funds by the way are emerging managers. So they have between say 10 million and 100, 150 million in capital. We're not generally talking about the sequoias in this analysis. Um, those, those VC funds, just like startups had a rough couple years, they have had a rough couple years. I mean their marks have been low. The ability to return capital of any kind to LPs has been very low. And I think people don't understand what that means. If you are so take yourself out of your founder hat for a moment and put yourself into a limited partner at a big pension fund. Your job as that person is to invest pensioners money. Billions and billions of dollars. You put a lot of that money into public equities, public bonds, other stuff. You reserve like 5 to 10% of it for alternative investments, which is private equity, venture, et cetera. So only about, call it 3 to 4% of your money is actually in VCs and asset class. But if you haven't gotten any money back out of VC for a long time, you're not going to continue to put more money in because you don't want that percentage to grow past 3 or 4%. So you have to get this money back before making net new investments in most cases, in many cases. So that like denominator of big people, big institutional LPs not wanting to over commit to venture as an asset class means that fundraising for VC funds has gotten way harder. If you're andreessen, sure, it's not hard, but if you're anybody else, it's been a very difficult fundraising environment for new VC funds. And that's, you know, what happened to startups in the downturn is happening now to VC funds two or three years later. And candidly I think that means that we're just going to have the same amount of capital given to VC but fewer funds and the next. Call it two to three years.

Yeah, well, and to be fair, there were a lot of VC funds that raised money in 21. I mean like it, what was it like? Probably like close to double in the course of like a year the number of VC funds out there. And I think about it in terms of, you know, you mentioned like this graduation rate, what's healthy, what's not for startups and you don't, you actually don't want it to be too high because not every company should be funded and, and capital should be used more efficiently than that. And I think it's the same with some of these fund managers that frankly didn't have any business being in the game and are washing out. But the flip side is it's, it's probably also at this point so negative that it's washing out, you know, what would otherwise have been pretty decent managers. Which means that some startups aren't going to get funded because, you know, those strategies aren't, aren't being addressed.

No doubt. There's. You don't. You always, you never just hit the level perfectly. You always overshoot or undershoot and that like the sine wave just keeps going. So that's for sure happening. What you worry about is that, okay, if more and more of venture is concentrated into bigger and bigger funds, does that change the kind of founder who can get funded at all? And in some ways I think it is a little bit. You know, I almost want to talk about venture as two separate things. There's like mega funds and small funds and they intermingle in interesting ways, but they do fundamentally different things. And that's where as venture as an asset class has gotten much, much, much more capital over the last 10 to 15 years. We're at the point where we need to have new language about how to talk about venture because just saying VC is, is too broad a term and you, you just kind of confuse what's actually happening. Yeah, yeah.

We did an episode recently because based on a conversation I had with a friend of. There's kind of like two different kinds of funds these days. There's what we call 2% funds and 20% funds, which is a little bit pithy, but also kind of this idea like if you're a large fund, you're andreessen, you're, you know, whoever it might be, the product you sell is the ability to, for an LP to write a hundred million dollar check or a $500 million check or in some cases like thrive. Right. Like a billion dollar check into a very specific company. And in that case like are you not just an asset manager collecting fee? Right. And like I'm sure there's a lot of arguments against and so forth. And then you have smaller funds where it's like yeah, like the 2%'s nice but it keeps the lights on. Like I'm really hoping for this 20% because is, you know that that's what I'm swinging hard for. And, and it's interesting to see this bifurcation occurring over time. I really hope that it does not become an industry that's, that's characterized by just very, very, very large institutions with a lot of a. Because I think, I don't know, I think some of the fun and some of the magic, um, and some of the character gets lost in that. But you know, that might just be my own personal bias.

It's romanticism.

That's right.

I, I, no, I think you're right. The, the issue is that, well, 2 and 20. I agree. It's a, it's a wonderful pithy line. What I think it can sort of obscure a little bit is, and this is something that is a constant debate across the VC managers that we talk to is like there's just this latent sense that the big funds are like being mean or the LPs are like being dumb by investing into the big funds. And they're not. These are really smart people that are making you know, 500 or million dollar 500 million to a billion dollar investments into funds for good reasons like this capital is available to these mega funds because they are selling something people really want want which is access to the biggest late stage names before they go public. That matters.

Right.

So it, it's not a, I wouldn't say that the, the fact that they're playing a different game is a bad thing. But to your point, you don't want that game to crowd out the other original adventure capital kind of idea. And so in as those things mingle. But it candidly, this is just a story of finance. Every time as more capital comes into a specific part of finance, returns get chased away because there's more capital. So everything is bid up to its price for perfection or even higher than that. And that's, you know, you just can't, we can't absorb this much capital into VC and not expect it to change returns for sure. One of the things that I think.

Has been interesting and I'm curious if you have any data on this is LP mix into, into smaller funds. And as you're starting to see more large funds back smaller funds as a way to like help cultivate deal flow and other things because you get so big that like even if you hire a bunch of people, it's just not, you just can't deploy into small companies. And you need to deploy into the companies when they're small so that they grow into something you can back later. But yeah, I anecdotally it just seems like I'm seeing a lot of funds, especially new funds where they're like oh yeah, we, you know Peter Till and Founders and Andre, you know, they're all LPs in our fund.

Yeah, there's definitely a mix of either super, super high net worth individuals who made their money on venture being bigger LPs into smaller funds or fun actual fund to fund models where they do direct but they also do a fund strategy on the side. Totally. It's happening more frequently now. The LP mix, you know, typically what we see is that the first LPs into a venture fund of say 10 to 20 million are going to be high net worth and family office by and large and fund to fund sometimes 20 to 50, you start getting more fund to fund involvement and then maybe an institution or two and then 50 plus to 100 million plus. You know, a lot of the older LPs are kind of crowded out a bit and there's more institutional capital that kind of of flows into those. I don't think that that mix is changing too much. I do think that there are going to be, I mean this gets to the point of liquidity in order to make all of this like fund to fund modeling etc make sense. It's really hard to make the math work if everyone's got to wait 15 years to get money out, which is candidly like that's the IPO timeline. Now it's 13 to 15 years. Stripe is 17 years, 16 years old and they are not IP anytime soon. So how do you get money out of that business when it you. You crushed it. You invested into Stripe, right? You did, you did what you were supposed to do, but you haven't gotten any money out yet. And so secondaries and liquidity exit paths become a lot more important in a world where private, the best private startups are staying private. Hell, it might be two decades.

You know, that's, that's why you launch a spec, right?

It's exciting. Yay, specs. I don't think.

Do you have data around spacs?

No. More. No more grifting, please. Spacs are not a good thing. Spacs are bad. There's no spacs by definition. And I'm sure that there are examples of good SPACs, but by definition, if you have to do financial engineering to get a company public that couldn't get public by itself, there's like a, There's a negative heuristic to that. Just go public.

We're watching Angel Studios go public through a SPAC the past two weeks, and they're down about 50% from their, their, their mark initial list price.

Unsurprising.

I, I think the original back into.

The ecosystem and says, we're spacking again. You know, there's a bubble. There's a bubble happening somewhere.

Yeah, yeah. I, I think the original idea behind SPACs was a good one. Um, or at least had some success. I think it just kind of got bastardized, frankly, because, like, you know, Jamba Juice was like a great deal that got spacked, but it was. The original idea was it's more like a private equity fund. Yes. Just taking a company public and then it evolved into this mess of what it is today. So. Yeah, I agree.

And I mean, the whole idea about going public is another incredibly interesting topic. You know, We've seen more IPOs this year. That's been awesome. But the IPOs that have gone out this year, absent maybe Figma, they haven't been the biggest late stage names. Right. So, like, you think there's. Everyone always talks about the IPO bar and how the IPO bar has gotten really high. Well, that also ignores. Is that there's a. People who are so very clearly above the bar who are just choosing not to do it. And that's. You know, if we wanted bonanza times in VC world like you, you would want the names that everybody knows to go public. And those names, for various reasons are just deciding they don't need to. And that's a. I think that's a new point in American capitalism where the very biggest private names do not aspire to be public names. They've just chosen not to do it.

I have, I have a hypothesis I'm curious to get your thoughts on. I'm wondering if, because it takes so long to go public, that what we'll start seeing more of, and clearly we see a little bit of it, but like actually have it be maybe a little more formalized, is that the seed stage investors and end up exiting to the series B C stage investors and that allows them to like, re up, you know, their next fund and keep operating and then, and you just push that all the way down.

Right.

The series C investors are selling to the, the pre IPO crossover funds and, and so on and so forth. And that like that secondary mechanism that used to be like really looked down on becomes of. I mean, I think today it's already like an accepted, but I, I mean like even more so. Like, like this is a standard way in which liquidity occurs within this market.

I'd be shocked if it doesn't happen. Candidly. What it does actually presuppose, though, which is interesting for VC fund managers, is okay if we have this new vehicle of liquidity that's sort of been there for a while, but now it's culturally accepted, which is it's okay as a seed fund to get out at the B or the C, not, not maybe not your full position, but, you know, exit a quarter of it, half of it, whatever it is, take that dpi, get the irr. Makes a ton of sense for the seed investor.

Obvious.

As long as you have a good relationship with the founder, that also shouldn't be too bad because if they're fundraising at a very constant rate, they have more demand than they know what to do with. And so having that extra, those shares make a ton of sense. So actually the relationship with the founder, as long as you've established it upfront, shouldn't be very hard. What's interesting is, okay, if I'm an LP1, I, I would probably prefer that because I'm, you know, money in the bank is better than potential money later in some ways, although you're taking a little bit of the upside off. But what it suggests is like, okay, this is you as a seed fund in old VC times, the goal was not to stay a seed fund. The goal is to grow, to raise a bigger fund next time. And now you do seed and A, and then you a bigger fund and now you do A and B. I, I do think that there's a lot of LPs who are saying, if I invested you, I want you to stay at what you're good at. You haven't proven to me that you have the right to win with Series A founders the way that you have proven to me you have the right to win with C founders. And so, you know, Charles Hudson at Precursor, I think is a great example of this, the benchmark model that he's following, which is, I'm going to raise the same fund every time with a little bit of increase for inflation, and I'm just going to do What I'm great at, which is finding seed stage founders. And if I'm getting liquidity on a better basis there, like, I just, I feel like that introduces the idea that's like, okay, you should just stick to your knitting then. And I wonder how many VC fund managers are actually excited about that because everyone talked about being the 20% manager, but everyone also wants to grow their fund size, which I think is interesting.

Because the 2% is very attractive. That is hard to beat.

Yeah.

Yeah, right? Yeah.

So fun times.

Maybe as a last question, and maybe Carter won't speak on this, what are your thoughts on YC company graduation day evaluations? My understanding was 20 million post money. Now they're 30 million and plus. And some of the companies here in Utah, at least, that have raised after yc, you know, sometimes don't have more than. They've got less than 5,000 ARR. And they're still, they're punching in at these 20 million or greater post money valuations. And you're seeing. And those same companies in Utah just couldn't raise. They would never raise. Or if they raised, they'd be lucky to raise at like a 2 to 5 million post money.

Yeah, I think it's a. I'm totally happy to speak on it. I think it's both completely rational and also overvalued. And I think both of those things are true for all these. I mean, for instance, YC to me is this amazing credibility stamp. And they've done an incredible job, like making YC the brand that it is. And so the idea that a YC company would have a better and easier and more advantageous time fundraising, that's like the whole point. Of course they will. Right. Because the network is so incredible and the brand matters a ton. That doesn't necessarily mean that that company is far more likely to be a unicorn. We can debate. I think Gary would say yes, and I think that he has some really cool data on it. But what it suggests is that YC itself is now a stamp alongside other important credibility stamps. So you don't even need to be YC if you're spinning off from OpenAI and starting a startup, you are, and you have zero revenue, you're going to get a high valuation, no problem. Right. So, like, there are certain credibility stamps that at the earliest stages, it's very easy for consensus capital to just go to those stamps and say, you are. You know, the CEO of GitHub is going to start an AI startup. I don't think he's going to have trouble raising at a crazy valuation. On weekend one, you know, Sierra AI raised that, like, nearly a billion dollars, I think. Or they raised 100 million on weekend one. They didn't have a product because Brett Taylor is their CEO, and that's what it is. So YC is just another way to distinguish legibility and in market versus out of market and illegible. And those two things have never been more different. And if you're in the club, you're in the club, and you get high valuations. That's how it goes.

If.

If you were to do a startup, would you apply to yc?

Yes, I would for sure. I have other thoughts on all other accelerators. I actually think there's actually some really. There's really great accelerators that are also applied to. What I would never do, which I sometimes see on Carta, is people doing two accelerators. Like, what. What didn't you get the first time? You know, like, how different is their fundraising advice going to be?

That.

That strikes me as odd. But, no, if I had a startup. Well, first I would say if I could. If I could fundraise without YC and I felt good about it, I would. But if I wasn't sure about it, I would apply. Okay. No doubt.

Interesting. Interesting to know. Yeah, I feel like YC has sucked all the hot air out of the room. So if you're an accelerator and you're not yc, like, there's only so much.

Supply, and they're, like, eating more of it. They're building a compound in Dog Patch here in San Francisco. They have, like a. Like, they're going to, like, own like, a, you know, 30% of the city pretty soon. It is wild to watch that growth. Come on. Yeah, it's been a really fun conversation, guys. I appreciate you having me here, and.

We appreciate your time. We feel super. I feel honored to have you here.

Oh, thanks.

So I really enjoyed watching you speak in California. I've really enjoyed your LinkedIn posts.

So cool, y'.

All.

Well, if there's a. If there's other topics that come up that you need a little bit of carded data on, you know where to find me.

Sounds good.

Thank you so much, Peter. This is super fun conversation.

Yes.