# The Three Types of Seed Round Today Why Seed Has Never Been More Competitive, Why Pricing Has Never Been Higher, Why Boards at Pre-Seed Can Be Helpful & How Too Much Cash Too Soon Can Harm Companies with Ed Sim, Founder @ Boldstart 20VC · Oct 27, 2023 · 48 min · 10,694 words Speakers: Ed Sim, Harry Stebbings Source: https://www.996.fm/episodes/20vc--ep-24a638c3/ ## Cold open **Ed Sim** [0:00]: The point is the three rounds are, there's a discovery round, which in my opinion is less than 2,000,000. So it's usually like maybe a first time founder exploring a new market, graduating to the next round, which would be a classic. And a classic round, in my opinion, would be 3 to 5,000,000. And finally, this is the megatron jumbo round. Greater than 5, it's usually 6 to $10,000,000 round, and it's almost always a seasoned founder with a prior exit. So when multi stage firms see opportunities like this, they wanna supersize it. Instead of raising 4 or five, why don't you raise 10? I'll give you the whole thing. **Harry Stebbings** [0:31]: Welcome back. This is 20 VC ## Intro **Harry Stebbings** [0:32]: with me, Harry Stebbings. Now today is a very real time show. I've never before seen the level of high pricing at seed that we are seeing today. Bluntly, it is very concerning. Then yesterday, a dear friend Ed Sim at Boldstart tweeted about the three different types of seed round and the next generation of what he calls inception investing. And I thought it was so good, we had to do a show on it. This was really, really fun to do. Ed is one of the best at early stage, having backed the likes of Superhuman, Snyk, Kustomer, BigID, and Front to name a few. And let me know what you think of this style of show. I really like to hear your thoughts. This is much more news and real time nature than our traditional shows. So let me know on Twitter at Harry Stebbings. 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We haven't done this in a long time. We planned. The world keeps on changing, but fuck it. Let's do it now. So thank you so much for joining me today. **Ed Sim** [4:09]: I love it. Thank you for reaching out, and I'm glad it worked out. I know we've been planning this for a while, and I think this is number three on your show. It's been spread out over many epics. We just **Harry Stebbings** [4:18]: discovered that your year of entry into venture was my year of birth. And screw sorry. I'm I'm eight. Oh, jeez. And there is a reason for that. I just wanna start with some context before we jump into the seed lands. Yes. People that don't know you on Boldstart, bluntly, who are you and what do you do? **Ed Sim** [4:33]: I call ourselves an inception investor. And in my opinion, the world's gotten way too complicated with pre seed, seed, and what have you. So we love partnering with founders when they have their idea, helping them iterate and battle test their ideas, helping them presell their hires, having them be armed and ready at incorporation and leading that round from the very beginning. And those rounds can be anywhere in size. It could be a few 100 k in size. It could be up to 10,000,000 in size. I would prefer your classic structure of 3 to $4,000,000, but sometimes there are some opportunities you just can't, like, get away. We said this would just be a chat. Is that not just pre seed, dude? That's what pre seed always was. I think pre seed presupposes that you need a c round seed round. And if you look at kind of the data, frankly, the data is skewing upwards. Did you know that the median age of a company that raises a pre seed round is 1.2 years of age now, and the median age of a company that raises a seed round is 2.7? I'm talking about data across the last ten years. Secondly, I would tell you is that a lot of times, founders who are second or third time founders don't wanna even be called to have a pre seed round because it presupposes you need a seed round. And what does that mean to you, Harry? It means that if you have a pre seed round and you have a seed round, that's another layer of dilution. So what you really would rather have for the best founders is they just wanna get a seed round. I mean, I wish we could just go back to that, but the cat's already out of the bag. **Harry Stebbings** [5:57]: So if we just take the kind of years to pre seed, the thing that worries me most is you have and I'm seeing this so much. You have a person leave Stripe or leave OpenAI or Hugging Face, and they raise 20 on a 100, and that's happening more and more. Can you just help me understand why do you think that's happening more and more now? **Ed Sim** [6:17]: Yeah. Well, look, I gotta be honest with you. It's it's gotten really hard to venture. I mean, people raised way too much capital over the last three or four years. Everyone kept raising funds year after year after year, and the spigot dried out last year. All the big multi stage firms with a billion dollar plus funds stopped investing in growth, and the data is there. And if you look at the peak, I think the peak was q four twenty twenty one that about $200,000,000,000 was invested. Most recently, was 73,000,000,000 in the last quarter. Right? 200 to 73,000,000,000, so that's a massive drop. And let's talk about it. Looking at the Instacart IPO, who made money, Harry, in that Instacart IPO at pricing? YC and early secure rounds. Yeah. First two rounds. These folks are like, okay. I need to go out and raise another fund. I've been sitting on this dry powder for a while. Let me go write out $2,030.40, $50,000,000 checks, because you know what? Even if I'm wrong, I get my money back, and I am the first person on the cap table. So likely, if the outcome is enormous, I can make some money. I'm not saying that's a good thing. I'm just telling you that's what the dynamic is in the market right now. No. I'm I'm saying that's a fuck **Harry Stebbings** [7:22]: thing. Going out of my way to say that's a fuck thing. And me and Parker Conrad, not a good person to pick a fight with, by the way. Note. But me and Parker Conrad thoroughly disagree. I think that too much cash too early has a net negative impact on 99.9% of companies, unless you are an exceptional allocator of capital like he is, like Daniel Eck is, like very, very few generational founders are. Do you **Ed Sim** [7:49]: agree with me to I agree with you 1000%. I said necessity is a mother of all invention. Look, every person that writes that $20,000,000 check or the 50,000,000, a $100,000,000 check thinks that the founder they're backing actually is the Parker Conrads or the pros and and the Daniel x. The reality of it is, there's only a few Parker Conrads and few Daniel x. So you're more likely to create major issues than you are to actually have an amazing company. Here's why. First of all, your talent has gotten way smarter. Way smarter. So when they come in, like, what's the valuation? Oh, you raised a 100,000,000 and a billion? How many are we gonna make money out this? Because you know what? I've been sitting in a unicorn for a long time, and I'm actually not making any money here for the last three years, and I took a pay cut. The best talent in the world wants to join a company, not on the highest price, but the best price with the right amount of capital for the right right risk. Second thing is, this is what we've been doing with founders. They'll come out to us and say, test the waters. You know, Boldstart's a bigger fund. Let me raise three to six. They were like, okay. How much do you really need? You know what? I'll lead you around now if you want three, but not at six. So they come back to us, you know, a few days later. I'm like, you know what? How about four? And the reason I do that, Harry, is because I wanna test them. I wanna test them to make sure that they are okay and that they wanna operate with constraints around them. Because smart founders, there's a lot of second time founders that can go out and raise 10 or 12, but there's some smart second time founders that we just backed at inception raising three or four because they want the pressure. They wanna take the heat off of the pressure to create and do dumb things and get a a next up round. It's much easier to do. They wanna hire great talent, and they wanna be lean. **Harry Stebbings** [9:20]: Do you really find that I mean, you mentioned one there, but respectfully, I come across them every day. Well, they're they're very good operas. I'm not dissing them in any way. But they're like, listen, dude. I love you. I wanna work with you. But I've got Andreessen giving me six on 30, and you're giving me three on 15. It gives me way more time. **Ed Sim** [9:38]: I'm not saying it's it's three on 15, but I'll move to like the four. Right? You know what I'm saying? So I'm just testing the constraints. That's number one. Number two thing I would say is that this goes into fund sizing, and, you know, as I said, I tweeted the whole thing about what an inception round is, and there's three kinds. But, you know, the way that we've evolved now is that sometimes I have to play ball, Harry. There are some exceptional founders where, okay, you know what? I will split an 8 to $10,000,000 round for that exceptional founder depending on what that price is and kinda where we go. So I'll give you a good example. We'd known this founder, Ian Swanson, for ten plus years, and he came out. He was most recently running go to market for AWS and their AI and ML group. Before that, he sold his other company in the ML ops space to Oracle. And he said, look. I wanna raise $10,000,000 to go after AI security. This was in October 2021. We started iterating with him and his idea and fleshing out the idea. At the time, it was just him. He eventually got two cofounders, kept iterating on it in March '22. Before AI security was hot and AI was hot, we led a co led a $10,000,000 round with Crew. And fast forward, came out of the gates fast and said the goal was to collapse. This is collapsing around. I'm gonna do my seed and c plus or whatever all at once. I'm gonna make it last three years because I don't know when the AI security market will be hot, And we closed a $40,000,000 round just, you know, a couple months ago, and he's got a bunch of customers signed up. So my point is is that I didn't wanna pass him the opportunity. I didn't love the company raising 10,000,000, but in that case, it made sense. So you've gotta be really careful about how you do this. **Harry Stebbings** [11:04]: You touched on the three types that you see in terms of the rounds. Can you just touch on them so we have an understanding of those? **Ed Sim** [11:10]: Okay. So inception rounds. This is what I'm seeing across the board. This is even what Sequoia and Greylock are talking about. And in my opinion, an inception round means you're engaging with founders well before they incorporate. You're helping them battle test iterating those ideas. You're helping them presell some of their initial hires. When they incorporate, you're leading those rounds upon company formation so the founders don't have to dick around trying to raise money for months, and they don't have to dick around looking for six people. They come out of the gates on incorporation with six people and money, and they're ready to go. So you save a shitload of time, and it's been happening for a very long time. And the three counting rounds I see at inception are basically this. And by the way, this is not incubating a company. That's not a scalable model unless unless that's all you do, and there's some firms that do that really well. It's pre accelerator because an accelerator, you've gotta be incorporated to join so you can give them your equity, and it's pre pre seed. And and the reason I'm saying it's pre pre seed is because as pre seed has gotten institutionalized, a lot of these firms wanna actually see a little more product at the door or are taking a little less risky bets around that, to be honest with you. That's what happens when you take institutional capital. And so, anyway, the point is the three rounds are there's a discovery round, which in my opinion is less than 2,000,000. So it's usually like maybe a first time founder exploring a new market, maybe like Wasm, WebAssembly, markup language, whatnot. The idea is they're a big market, but the market's really early, so they're gonna flush it out for a while. And the idea is it would graduate. It would graduate into the next round, which would be a classic. And a classic round, in my opinion, would be a first or second time founder, and this is where it becomes interesting. It's about 3 to 5,000,000, and this is the round that I prefer the most. It's where that this founder, it could probably raise more capital in a lot of cases, but they wanna be more constrained and, like, say, you know what? I'm gonna take the air out the balloon. I'm gonna take 4 to $5,000,000. I'm gonna build a lean team, and I'm gonna operate. And the reason that this is interesting is because your traditional seed funded company now, Harry, if you look at the data, the median number is two point seven years old. Right? That means they've usually raised a pre seed round. Now they're out going to raise a seed round right now, so that's really not an inception play. And finally, here's the the jumbo. This is the Megatron jumbo round. This is greater than five. It's usually 6 to $10,000,000 round, and it's almost always a seasoned founder like an EN that I mentioned earlier with a prior exit. They're probably building their next company. It's probably iteration number two or three in the same idea that they've had and made money on before, and they're maybe reinventing an existing market with a huge TAM. So when multi stage firms see opportunities like this, they wanna supersize it. And they say, you know what? Instead of raising four or five, why don't you raise 10? It'll give you the whole thing. And that's kind of what I'm seeing in the market today. Those are three rounds, and they're all people with ideas trying to get going, and they can raise anywhere from zero to 10. And by the way, I'm saying this is because you'd say this was pre seed. I wish it was just called seed, because that was what was when I started 2010, there was seed and then a, And and that's what would make the world simpler. But pre seed usually is a smaller round in people's minds, and that's almost like a negative connotation for a really good founder. **Harry Stebbings** [14:09]: What worries me is people don't think longer term on the jumbo rounds, And say we're just doing a 10 on 50, yeah, just base case. 10 on 50 is the jumbo, which we both see a lot. We see 20 on a 100 a lot. Okay. Sure. Let's project this out twelve to eighteen months. It takes longer. Customers don't convert like they thought they would. Market doesn't move like we thought it would. You're pretty fucked because you can't do another 10 on 50. But if you raised three on 15, you could very easily do seven on 45. That happens. So you put yourself in a shit position. No? **Ed Sim** [14:43]: Yeah. And that's why I I sometimes test founders. I know you can raise they'll come out and say three to six. I'll say, why not raise three to four? Here's why. And some of them say, you know what? I'd rather have some more comfort in my own mind to have 10,000,000 in the bank because then I have three years of runway. But the reality of this, having more comfort screws you. **Harry Stebbings** [14:58]: This idea of like, oh, but then it buys me the runway. That's if you put it in a bank and do not touch it. How often does one put it in a bank and does not touch it? Oh, that stretch higher. Oh, that new geography we could open up. Oh, new product. Do you know what I mean? **Ed Sim** [15:14]: It's a very rare founder that that does that. You know you know who actually is one founder that did that was Rahul from Superhuman. So we gave him one of the first checks back in reported before he's from fund one. Fund two, he wrote his first check into Superhuman, and he raised quietly you know, he made us put three or four different checks in in seed rounds, in seed notes just to get our ownership because we'd always asked for more. He cut us back. That was his strategy. Then he raised the $10,000,000 a round. He put it in a separate bank account and said, I'm not gonna touch this thing. I'm literally just gonna put it there. I don't wanna see it. It's in a separate bank account. I'm only gonna operate on the seed money that I had. And you know Rahul Vohra. The guy is a he's an operating machine, that guy. So having been through the experience where he's scarred for life or when he sold his company to LinkedIn, basically had no money. He's like, I'm never gonna be there again. And so in some ways, it almost killed him because he would not move as fast as he could because he had the runway, but I'm just saying it's a very rare founder that can do that, and most people can't, and you're better off feeling that pressure. When your backs are against the wall, the best people perform. When you're actually too comfortable, you don't perform. That's the bottom line. **Harry Stebbings** [16:17]: So my question to you as a result of this is when I look at that, seed funds back in the day were 25 to max a $100,000,000. That was kind of how big seed funds were. Yeah. This just doesn't work at all. If you're doing classic 3 to 5,000,000 round, let's just project this out for people listening. 3 to 5,000,000 rounds, say, let's say the lowest three, and we're leading those rounds, say, we're doing 2 and a half. Okay. If we do 30, which is the average that we're recommending that if you think about diversification, then you're done. On a 100,000,000 fund, the biggest, with no reserves, that's all you could do. The seed funds structure doesn't work anymore, does it? **Ed Sim** [16:56]: I'll give you some different math. I think in order to win, right now in today's venture climate, you've gotta compete with angels. You've gotta compete with pre seed. You've gotta compete with seed. You've gotta compete with multistage billion dollar firms, period. You have to. That means you need to get ball control in any round that is presented to you that the founder wants to have. You need to actually be able to write if someone's raised raised a million bucks to write just write a million dollar check, and that check needs to be meaningful from you. It doesn't it it has to not look like an option. Okay? At the same time, you've gotta move all the up the stack, and for that special founder like an Ian, you've gotta be able to participate and lead or co lead that $10,000,000 round. And so what I'm saying is that if you're ownership focused and you're highly concentrated, let's just say I have twenty twenty five companies in my fund, and my average check is $3,500,000, I buy 15%. K? You can talk about the next round being, let's just say, it could be anywhere from 50 to a 150 posts depending on what the company is. Right? But let's just let's pick a number. Depending on the on on the round size, your second check could likely be bigger than your first check, and I've seen that across the board. You know, when I start with a $3.54000000 dollar check, I'm writing a 4 to $6,000,000 check-in the next round if the companies execute. If they don't execute, then, you know, that's another question altogether. Secondly, it usually takes a long time for these companies to get to product market fit, particularly in in the enterprise sectors we invest in. It takes a long time to build technical products. You might have to do a bridge or two, and you might have to have the deep enough pockets as your own firm to not rely on others and find the signals to step up. You know Guy from Snyk? Harry, do you know how many rounds he raised before? He raised his a? Three rounds. Three rounds of capital before his a. Guess who gave him all three rounds? We were unwavering when doing **Harry Stebbings** [18:34]: that. At some point, you must go, Jesus, this is taking longer than we thought. **Ed Sim** [18:37]: We did. There was a company Jesus moment, I remember, with Guy after we'd done the first seed round, and, like, we're getting traction. But downloads don't equal revenue. Right? This was in 2016, 2017. However, he's like, yeah, I got some enterprise customers here. I don't know if I wanna do it. I might create this new bridge between the enterprise and my cloud, and it's going to be this thing called a an agent broker that I'm gonna create. And I can I can charge 50 k? And he goes, I don't know how long it'll take. He did it. Took a few days. He built it out, signed a few customers, like, boom. Here you go. Right? So if you are actively involved and engaged on the board from the very beginning as well, and you have a very concentrated portfolio, you see signals. And the signals that we see may not be the signals an outsider sees. The important part is if Guy went out trying to raise capital from someone else and I didn't have enough capital to give to him, he would have gone out of business. That's where you have to kinda come in. You've gotta know the founder. Do we get all the bets right, Harry? Hell no. We don't get it all right. But if one or two of them work, you know, within the model so all I'm saying is that the fund size actually can be larger. And I don't think it should be a billion dollars, and I think 50,000,000, it shouldn't be 50, but I think a fund size between one fifty and two fifty for doing this in a highly concentrated position with ownership and doing it in a way that allows you to write bigger checks after the discovery round to help a classic round, you know, raise a little more of an extension, and to support these founders through the b round, I think it's one fifty to two fifty. I don't think it's your $100,000,000 fund of old. But I'm saying it has to be one fifty to two **Harry Stebbings** [20:03]: fifty. Oh, good. All good. Yeah. I'm saying it has to be. You cannot make it work otherwise. And also, you was horrible with the 50 fund size, is you do need to write 500 to a million. What you know, Ed, if I'm writing 500 to a million, I'm a pain in the ass to you if you're trying to bring me into the round even as a friend. You're like, ugh. **Ed Sim** [20:23]: Dude, I've been there, done that, Harry. I I've done everything. Remember, we started out with a million dollar fund. This was in 2010 when seed was the first round of record. And and then the pre seed category was created because seed seed investors weren't taking as much risk. And now the pre seed investors aren't taking as much risk, which is why I'm saying let's do inception investing. The reality of it is the market and world has changed, and the point is is that, yeah, you know, you need to have ball control, and you **Harry Stebbings** [20:50]: need to be able to do anything. There's so many ways I wanna take this, but, like, I I chatted to Jason Lamkin, he's a good buddy of mine. He's like, yeah, but I don't know if enterprise SaaS actually, like, is investable really anymore. And his reasoning for that before I just destroy, you know, Boldstart's thesis is, as, Angie, you know, with the expansion and inflation of entry point, the price that you pay when you come in, and the rationalization of upside being public markets and revenue multiples, it's not possible to do as well anymore by any stretch. If you think about any growth investing in enterprise SaaS, it definitely isn't. **Ed Sim** [21:25]: When we started this fund, Elliot and I were like, man, if we get, like, a billion dollar outcome, know, if we orient our our funds to getting billion dollar outcomes, that'd be absolutely amazing. What we didn't see was that you could orient some funds towards $10,000,000,000 outcomes, but that's kinda not the fund size we wanted. Let's say we move back to a world where 2 to $3,000,000,000 outcomes would be really fucking amazing. Well, guess what? If you have the ownership that you target, let's say, in our case, it's 15%, some people may have more. If you are disciplined on your entry price dude, the I'll give you the counter argument. IT spending is refucking accelerating right now. You look at Microsoft, and they had 11 down quarters. They had their first up quarter the other day from reaccelerating numbers. And I'm just saying the cloud stuff, we're still only 25% to the way of migration from on prem to cloud right now. And cybersecurity spending the wonderful thing about cybersecurity is that there's always a new attack vector. And JPMorgan, for example, spends a billion dollars a year in cybersecurity. Guess what? They're always looking to protect the next big thing. So my perspective would be, I love it when guys like Jason say it's overcrowded because I'll just keep putting my money to work where I'm doing it and just being disciplined about it. So I think there's a massive upside to that from **Harry Stebbings** [22:31]: my real Do you think people don't anticipate levels of dilution enough? I've been in this game long enough to know that dilution really hurts, and your 15% entry turns into 9% on that asset often a little bit more sometimes. My point being, do you have any lessons, observations from the impacts of dilution and just what it actually ultimately means when it comes to cashback? **Ed Sim** [22:53]: Yeah. Well, capital efficiency matters, period. Right? So that's number one. And to that point, you will never find Boldstart, for example, funding companies where, you know, they're raising 20 or $30,000,000, and two thirds of that money goes to Nvidia. Because, you know, if my LPs want to actually invest in Nvidia, they can invest in Nvidia. They don't have to take haircuts from fees from me to do that. Right? So that's number one. So those aren't capital efficient businesses in my mind, and they're they're low lower margin businesses. Number two is is this is also why, Harry, we created the opportunity funds. So our opportunity fund right now is almost the same size as our core fund. Our strategy is to inception invest. It's to continue supporting the best founders as they as they keep growing, to maintain that ownership. And then, you know, once it after it hits the Series B, we're still able to maintain that ownership and our board seats as the best ones go. So from my perspective, that's where kind of the steady hands come into play in terms of working with the founder and continue to write those checks. So I'm **Harry Stebbings** [23:49]: just pushing you here for fun. These are not my opinions, obviously. But I tweeted yesterday, there's a special place in VC hell saved for pre seed investors to take board seats. Am I wrong? **Ed Sim** [24:02]: Yeah. So look, I don't know what pre seed is, first and foremost, because if you're raising 500 k to 1,000,000, that's what I think of pre seed, then, yeah, you don't need a fucking board. Here's what I do. I go the other way. Founder, what works for you from a cadence perspective? Number one. Number two is, if you're doing a classic round of you're raising 3 to 4,000,000, I like to tell the founder that, hey, you should probably not do a series of safe notes here because you never really know what you own, especially on conversion. You you wanna actually do a proper round. And here's what we'll do. What we'll do is we'll put a board together. But, you know, as I said, we are gonna have our regular dialogue based on the cadence that works for you. Because usually, the first six months, they're just heads down building. I'm not gonna be helping them build their product. Harry, I'm investing in them to build the product of the future. That's their job. They will reach out. The best founders reach out to us and know exactly what to ask for, know exactly how to ask for it, know exactly when. And then what I say is, let's start doing a quarterly cadence for the board. I just want text. No fucking pretty images. But what I wanna do is prepare you for the day, you know, a year from now, a year of six months in, so eighteen months from funding, that when you have a board, you at least have this cadence going, and we're actually prepping you for that pace to go. So it's more of a preparation stage than anything else, and it also depends on the founder. The best founders in my opinion, Harry, ping me when they need me. They'll send me a text. They'll send me WhatsApp. They'll send me iMessage. They'll hit us up in Slack. But putting onerous frameworks around founders where you need to talk every week or two weeks or whatever or having every monthly board meeting cases, there's no set rule. It really depends on the company, the founder, their experience, and the point is you gotta develop a really trusting relationship with that person. I I saw that, by the way. Was like, who does weekly or biweekly calls? Was just like, that was **Harry Stebbings** [25:34]: Do you know what was so funny? Think Keith Raboy responded to that. Sony, what Sequoia has been doing for the last fifty years. Dot dot dot. And then I had another message from another GP, probably one of the most successful investors in the last ten years, that said, if your founder does not want a weekly call with you, you clearly are not adding much value and a shit. **Ed Sim** [25:53]: Here's my perspective. Look. We take board seats for the most part, but once again, if if they're smaller really much smaller rounds, there's usually no need for it, and you you have that relationship. Right? And they're gonna reach out to you. I don't wanna back someone that doesn't think we can help them and add value, and they're not gonna wanna take my money either. Right? So that's why I stay focused in my swim lane. I'm not deviating and doing biotech or, like, health tech investing. It's just not my not my area of expertise. **Harry Stebbings** [26:16]: Ed, we're seeing, like, macro not looking great. We're seeing interest rates potentially going higher. We're seeing global conflict. I mean, the world is not in great shape, and we're talking about kind of 20 on 100 seed rounds. Is seed immortal to macro externalities, or will this shake down to the seed markets eventually, do you think? **Ed Sim** [26:37]: I don't even know what the fuck a 20 on a 100 post is anymore, frankly. I mean, that's just I think at the end of the day, dude, it comes down to being disciplined. Right? I don't know. I I think that there's some lessons that haven't been learned, and and I'll go on my rant. I mean, I think this whole AI thing, frankly, I think AI is the the most transformational thing that we've that we're ever gonna see in a long time. However, I still think it's really fucking hard to make money there. This is a place I I totally agree that where data moats matter. Anyone could take a API call to OpenAI and test things out. I mean, if I can look at Adobe, they've done an amazing job kinda going after that space. So I think chasing anything with a dot AI in their domain or an AI thing, I think, is insane. However, I do think there's some opportunities there, but I'm not gonna be funding these things in a 100 posts. That's what's regularly happening now. I would love to hear your thoughts, Harry. You're probably seeing a ton of AI, LLM, next gen stuff, and I just think that this is just like I saw in an Internet bubble. Everything had a .com on it back in '96 because I saw that. I lived through that shit. There are be some massive companies built, no doubt, but it's not getting built chasing a portfolio of a 100 posts across the board. **Harry Stebbings** [27:42]: I would say I now see 85% of our deal flow now purely as AI first deal flow. **Ed Sim** [27:49]: Well, but what does that mean to you? Right? Because I just did an analysis of my portfolio. Okay? And I just said, okay. Currently, in the portfolio of our companies that are running from funds four through six, fifty 5% of our portfolio companies have an AI related offering today. And within the next twelve months, 80% of the portfolio will have an AI offering. And in my opinion, does that mean I'm an AI investor? Well, if you wanna call me an AI investor, you can, but I don't really think of myself that way. I always think about what problem are you solving first? How are you doing it uniquely? And, oh, by the way, if you're adding AI, very cool that, you know, let me know kind of how people will pay for it and why it's gonna be better, but versus the I'm an AI company. I think, honestly, **Harry Stebbings** [28:27]: the people best suited to win are actually your Canvas styles of the world, who actually do have all the data, but none of the incumbent regulatory downsides of being a public company. I think it's your high growth pre IPO companies. **Ed Sim** [28:41]: I agree 1000%. Did you see Snyk? I know you talked quite a with Guy recently, but Snyk has Snyk Deep Code AI. Guy actually had bought a company four years ago with his own machine learning expertise. **Harry Stebbings** [28:52]: Totally. But also, he probably couldn't have done that deal in terms of buying the company or moving at speed if he was a public company. It's not possible when **Ed Sim** [29:00]: Exactly. And he wouldn't be able to do it now either because he did it when AI wasn't hot. **Harry Stebbings** [29:04]: So I think M and A is gonna go to shit, by the way. I think anything sub 1,000,000,000 is not meaningful enough for M and A teams and corp dev teams to actually engage with. And I think anything over 1,000,000,000 is gonna be incredibly arduous and to get over the line from a regulatory perspective. Do you agree, or am I overly negative? **Ed Sim** [29:21]: I think we're gonna see a lot more m and a's coming ahead right now, and and I'll tell you the kinds we'll see. Right? There have been a lot of companies, and there's, what, thousand plus unicorns out there right now. Not all of them will go public. Many of them are overvalued right now. And guess what? There are probably some growth investors sitting around saying, you may have five to seven years of runway, but if I can get my money out right now on on the stack right now get my money back, and investors, by the way, down the stack will get their money back. And by way, founders will probably make money. Let's just let's just say if there's an opportunity to go do that, that would be a brilliant opportunity for people to maybe exit out, take their one x, and they can go reinvest it somewhere else. And I'm talking to lots of growth investors who are kind of looking at saying, man, mean, you know what? If can get one x out after a few years and actually reinvest that stuff into something else at a better price, or I I think that the realization of holding on **Harry Stebbings** [30:08]: They're to these good points get I didn't mean this rude. They're not getting that, dude, because the founders are sitting on this pile of cash going, you're not having your money back. And **Ed Sim** [30:16]: they're going, probably No. No. It it depends, though. In situations like a Loom where they had a that was a great exit for the founders. Look at those numbers. Fucking incredible, dude. God bless them. So it cleared the pref stack. Even though the last round investor came in at a much higher price than the headline valuation, it was a huge win for the founder. So I'm pointing at situations like that where in the past, you've probably heard stories about VCs not wanting to get one x back. Well, guess what? You're gonna see some smarter investors be like, you know what? Maybe I'll take that money off the table now and put it somewhere else. And the founders in that situation killed it. They should. They put us a great business. **Harry Stebbings** [30:53]: I I loved the Tech Grunge article where it's like, Joe put a positive spin on it. I'm like, I'm not fucking surprised he put a positive spin on it. I messaged him after this being like, what a joke. Oh, **Ed Sim** [31:01]: yeah. Incredible. And and so yeah. And so people then say the investors failed. Well, guess what? Maybe they didn't. Right? Maybe they actually maybe they actually were like, maybe that was a great opportunity for them because they can go reinvest and do some other things with it, and it's a huge win for the founder. So I think those growth kind of funds that put the money at the peak, I think the ones that deliver one x or slightly above or probably do very well will be above, know, because there'll be a lot of ones that are underwater, is my opinion. **Harry Stebbings** [31:27]: I do wanna discuss the growth, because, like, you know, we've spoken about the the frothy nature of seed today. Growth seems to have died, though. Do you agree, or do you actually think that there there's resiliency in the growth market too and that we're overly negative on that? **Ed Sim** [31:40]: Look. I first of all, I've been doing this long enough. This is year '27 for me where things are never as good or as bad as it seems, and the echo chamber is stronger than it's ever been with social media and everything else. But my point is that, yeah, the numbers the overall numbers itself in terms of growth round valuations, yeah, they're fucking down big time. Number two is the valuations from growth rounds. I think, you know, if you look at Carter's data, I think the Series C was down from four seventy five to three seventy five already or two seventy five. Some something crazy like that. So, yeah, they're getting crushed. But, however, there's still pockets of opportunity where people are going from 1 to 3 to 4,000,000 in the infrastructure space that I see to 10 to 12 kind of on their forecast, and they're still raising at $2.50 to 400 now. And that's kind of an early growth round. So, yes, the majority of those things, the data says, yeah, growth gross is is taking a hit, and it is. But there are pockets everywhere where people are paying up for things. **Harry Stebbings** [32:34]: What are you saying to your founders? Like, the founders that are going out to raise and they're like, shit. That's a really compressed price. Like, $2.75? I thought we were more at the 500. Are you saying, it's a new world, take it? Or are you saying, hey, take another $510,000,000 from us and push it out ten to twenty months or eighteen months, whatever that is, and the markets might be different then? **Ed Sim** [32:55]: Yeah. So I have a couple of thoughts. One is is that when the markets are pretty hot, we got ahead of it. We got a lot of our companies funded with a lot of capital. I think the bigger challenge we might have is that there's some companies that have too much capital. We had to work with them to get more efficient. For the ones going from, you know, c to a or kinda a to b, I was doing the math. I think we got 15 next rounds done from our last annual meeting from a year ago to now. So we did get a lot of rounds done in the in the heat of the market. We even got a a crypto infrastructure round done and an up around a $10,000,000 a round done in this market. That founder founding team, by the way, happened to go from zero to 1,400,000 of ARR from a standing start in sixteen months. But the point is is that the best founders now aren't as we tell them, let's not worry about what the best price is because the best price could once again set you up for performance issues down the line. We want to you to get the best partner who believes in your business in the longer term at a fair price. I think the days of founders being obsessed about the highest price possible, I I think for the most part are over. And I think the smarter founders want to actually, you know, get fair prices, you know, above average prices, but they also know that, a, they don't wanna take in way too much capital, which means more dilution, and they also don't wanna set the bar too high because they see what's happening in the in the exit markets right now. You limit your options to create value when you take money at too high a price. You're gonna you're not gonna be able to sell your business because someone's not gonna pay multiples in that. **Harry Stebbings** [34:19]: I I agree with you, and I get you in some ways. But then I was speaking to a a founder the other day operating, guess what, in the AI space. And they're like, yeah, I get you, Harry, but I need $10,000,000. Like, we need a lot of compute. **Ed Sim** [34:30]: I'm not playing in that AI compute game right now, so I do understand the need for those founders to go out and raise capital and go do it in the way that they need to. But, you know, I'm just saying that history rhymes. You and I both know there's some lessons that we should probably learn from the last two years. **Harry Stebbings** [34:44]: Is there **Ed Sim** [34:44]: And there's some **Harry Stebbings** [34:44]: lessons that we should learn. Because I'm looking at some of these. I sent you that deck for the ridiculous round, and this was from Pedigree Investor who's been through cycles at one of the best firms. And there are lessons that you should know better. And there are lessons that we should have learned that seemingly haven't. **Ed Sim** [35:02]: As I said, certain firms that have lots of capital to work, checks like that, a $10,000,000 check, may be a complete option check for that firm, you know, or maybe they're almost fully invested right now. And so I don't know what the reasons are, but everyone along the stack has to do something that makes sense for them. I mean, just from my perspective, I you won't be finding me participating in 2,800,000,000 inception rounds from a a seed firm, but the multistagers are doing it across the board. These are option checks. Still option checks for them. **Harry Stebbings** [35:29]: My biggest lesson from the last few years was actually just to sell at some point. See, we were always told lean in, lean in. Bullshit. You need to lean out strategically over increments over time. That was a big lesson for me. What was the lesson for you in hindsight you wish you'd done differently? **Ed Sim** [35:46]: I would say that the biggest lesson is not much different from you. Two lessons that I think about. One is no matter how disciplined you are, we talked about too much cash can kill start ups. Right? No matter at any stage. Okay? No matter no matter what. Right? It just as I said, there's there's a death spiral that can happen if you miss miss a quarter or or a quarter or two, and just the pressure goes up. And the last batch of hires who are usually the largest percent of your business, if you're growing and you if you are in hypergrowth mode, are feeling like they're they're underwater. Right? So that creates lots of issues from that perspective. So that's number one. Number two would be ownership matters always, but also you have to balance that out with valuation valuation as well. So I'll give you an example. There are so many preemptive rounds happening over the last few years where, you know, every six months people are raising rounds that usually there hasn't been enough data points to merit coming in on the next round or the round after. And and, yeah, the company hasn't performed enough for you to derisk yourself in between rounds because, let's say, you got three rounds down done in twelve months. And there should have been situations perhaps where we shouldn't have gotten into every single one of those rounds because maybe it wasn't derisked enough between the time you closed a round and to the next round. I think moving forward, since there are less preemptive rounds, there is more time to understand, has this been derisked enough? Is this an appropriate time to lean in even more to actually do your pro rata or get more ownership? So that that's kind of kind of what I'd say. Ownership always matters, by the way, on these exits, particularly in a world of lower multiples, but you've gotta be careful about how much you lean **Harry Stebbings** [37:18]: in. Two final ones in our associates. What's your biggest investing win, and how did that impact your mindset? And what's your biggest loss or mistake, and how did that impact your mindset? **Ed Sim** [37:28]: My biggest win to date, and and win, I'll call it realization, was kind of leading the round at inception with Kustomer, with a k, and that was, like, I don't know, eight or nine pre, I think. Basically, wouldn't let the founders out of the room, wanted to give Brad and Jeremy the check right there, like, hold on. Let me incorporate first. And this was their third startup. Right? This was one of the ones where you're in the room, meet you them, you got the energy, you're like, yeah. Fuck yeah. You gotta gotta do this. Right? So fast forward, there are some tough times. What we learned in that process was that someone going after an incumbent at that point in time was Zendesk, it takes longer. Do you know why? Every time we're about to sell something, we're like, shit. You need more product. So to go after incumbents, you actually have to build more. So it took us longer, and we had given them a bridge round between the a and the b before we eventually sold it to there's not a reported price, but let's just say it was over 1,000,000,000 according to the news, and that was my first kind of really big win. So no matter how how how big of a vision you have, you still need at least the table stakes of checkbox of four things that they may need before they even believe in your vision. So it takes longer. So that's one. And that has implied kind of some more investments now because there's a lot of founders coming back and reimagining things. So that's what happens in enterprise. It's the same shit getting rebuilt every ten or fifteen years in a different way with a different pitch. Second thing I'd say is my other potentially big win right now is Snyk. I mean, it hasn't been, you know, exited yet, but, you know, we had funded Guy in the in the first company, right, when he sold his company to Akamai. And I bothered Guy every quarter. Was like, hey. When are you starting when are you starting your next thing? And eventually, he's like, got an idea. And I was like, those first two ideas are okay. The third one, I'll give you a check right now. That was sneak. And, you know, those are some hard times, right, in terms of he was creating a new category. So that's a different kind of play. Creating a new category. Category creation takes a long time too. It took him two and a half years, two and a half to three to get his first million of ARR, and there are some times where it was really fucking slow. But there's the signs were there. The product love was there. The product is cranking along. The the pipeline was building, just wasn't converting. So it just takes time. The biggest mistake I I made probably would be, you know, as I said earlier, is that when companies do preemptive rounds and preemptive round after round after round in a short period of time, I never fault myself for the first check. Right? Because you have to believe in the first check. No. I usually never fault myself for the second check, but the third or fourth the third check, perhaps, yeah, that that should be an opportunity where, like, you know what, dude? You own enough. Lean back a little bit. So ownership matters, but you have to be careful kind of the pricing and everything else. And you can read between the lines here in that one, but that would be leaning in too much, too quickly without enough signals changing things from those rounds. So those would be the two balanced answers. I **Harry Stebbings** [40:01]: wanna do a quick fire round with you, Ed. So I'm gonna say a short statement. You're gonna give me immediate thoughts. Does that sound okay? Yeah. So will 99% of money going into AI start ups today go to zero? Venture money, that is. **Ed Sim** [40:13]: I'd probably say 80% of it will. I don't even know what the fucking AI startup is, but let's just say the money chasing all these LLMs, there'll be a lot of money vaporized for sure. What would you most like to change about the world of venture, Ed? Man, it's gotten so fucking competitive out there, man. It it's insane. And I think that and there's too much money out there chasing things, and I think there's a lot of irrationality right now. I mean, as I said, I'm looking at the inception rounds. Right? You know? I laid out a framework from zero to zero to six, zero to eight, zero to 10. But, you know, you're getting $30.40, $50,000,000, you know, inception rounds done, and I think it's just bonkers, man, and it skews people's brains and memories. So I just wish there's some more rationality around, you know, what everyone everything and everyone was doing. What do **Harry Stebbings** [40:55]: you advise LPs today looking at the landscape, trying to get a grip on it, and trying to understand what's going on? **Ed Sim** [41:00]: Well, look. I think being first on the cap table really makes sense in terms of making money in any environment with multiples compressed. I think, two, I think ownership is going to matter. And I think, three is, I think there's gonna be a new generation of firms kinda coming around that are building, you know, different businesses and different VC funds and trying things differently. I think that there's some legendary brands out there, and I am so impressed with how long they've been around and the teams that they have. But I think there's also given that the industry expanded a lot, you know, the question for them is gonna be who's gonna be the next generation of of funds out there that that are gonna win for a long time. **Harry Stebbings** [41:37]: What will crack open IPO windows, do you think? We mentioned Inscot early. Inscot arm didn't. Clavier sadly didn't with this. **Ed Sim** [41:44]: I think it's very simple. Mister Jerome Powell signaling to the world that interest rates are under control now, and we're gonna the air has been taken out of the balloon, and the interest rates have to go down. I mean, there's a direct correlation. I had some of my friends at JPMorgan gave me a chart that at its peak, I think, any company growing greater than 40%, and there's an inverse relationship to interest rates and and forward valuations, 35 times forward. Do you know today that number is at 6.8 times forward as interest rates kept hiking up? And the five year historical number is 13.9 times. So do I think we're gonna move back to a world of 35 to 40 for companies greater going greater than 40%? Never again. Do I think 6.8 might be the low point? Yeah. Is it the five year kind of average of 14? Yeah. Let's just say it's somewhere between ten and fourteen. So you've got to build your business and your investment strategy and your ownership strategy around looking at a world where we get 10 to 14 for the best companies, forward next year's numbers. And if you could do that, then I think you'll have an opportunity to make a lot of money. If **Harry Stebbings** [42:46]: we project it out, where do you want Boldstart to be in ten years at? Like, when are we you know, think about firm design. What do you want Boldstart to be? **Ed Sim** [42:53]: I think we're pretty much the same than we are now. I mean, I think what we're gonna do is that, you know, we're we have four operate four investment partners. We've got an operating partner, Anna, out of London who you may have met with. She worked with Guy at Snyk. She was employee four. So we're gonna continue to add more operating partners to help, really, these inception stage founders get there faster, and it's been working like a charm. Have We a few others identified that we're gonna bring to the team. We're gonna stay where the market is in terms of we want to be in that inception round. I don't wanna lead a rounds. I don't wanna get so big where I feel like I have to put money to work to make bad decisions. I gotta tell you this. We only did last year, we announced our two new funds, which were our largest ever. We only did three net new lead deals in the back half of last year because we thought the markets were going a little crazy. We were seeing a lot of incremental ideas and big ideas. And then in this first part of the year already, we've done seven net new, and we have an eighth one we're about to do. So we'll be up to 11. And that's not because we're chasing AI or anything like that. It happens to be because we have a lot of founders that we've known for a long time, second and third time founders coming out of the woodwork, you know, ready to get going. So I wanna stay in that range. Whatever you call it, ten years from now, I hope it's kind of inception investing. I wanna be in that place and no bigger. I I don't wanna be an asset manager. It's really hard to deliver returns in this market the bigger you get. **Harry Stebbings** [44:09]: Dude, listen. I love chatting to you always. I can't thank you enough for this, and this has been such a pleasure as always, man. **Ed Sim** [44:15]: Harry, you are a fucking just you have such a special talent for interviewing people and asking questions, and you're so deep in your knowledge. And I think that you learn from every person you interview. You've interviewed the best, and I could see that your mind is iterating. So you're learning, but you also have your own thesis that you're working on. I'm very impressed. So I just wanna tell you that I'm I'm watching you in real time fucking learning, and I I love what you're doing. **Harry Stebbings** [44:38]: I have to say that show was so much fun to do. For me, personally, I so much prefer the more conversational episodes. Let me know what you think. I want them to be the best for you. They have to be your go to listening material. So let me know on Twitter at Harry Stebbings. Likewise, you can watch the full episode on YouTube by searching for 20 BC. I always love to see you there. But before we leave you today, ## Sponsor read **Harry Stebbings** [44:59]: we have to talk about Canva. Canva is on a mission to empower the world to design. That is why they've introduced Magic Studio. Magic Studio brings together the best AI powered tools for you and your team to help you redefine the way you design. 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