Cold open
I think you want to invest in people that can materialize labor, capital, and customers. The way that I do it, kind of to be pithy about it, is like we either want to buy any percent, any percent of something that is absolutely working or high ownership of something that could work. The best companies have hostages, not customers. So probably of the unicorn class, I would bet that maybe 5% will ever be able to go public. We are buying out of the money call options, and we hope they expire in the money. You don’t necessarily think you could take it as a given that a small fund will outperform a large fund.
$15,000,000,000. That is how much Andreessen Horowitz just raised. It is over 20% of the entire pool of capital raised by venture firms. Today, I’m joined by Alex Rampell, General Partner at Andreessen, where he leads their $1,700,000,000 apps fund. He’s also led deals in Mercury, Plaid, Opendoor, and many more. And this is one of the best shows that I’ve done in a long, long time. I actually think to one of Alex’s statements every single day. It’s taught me so much, and it’s very simple. Will the startup acquire distribution before the incumbent acquires innovation? I have Alex to thank for that, and it always sticks with me. But before we dive into the show today, over 80% of Fortune 100 companies are running their businesses with Airtable. Airtable combines AI with the scale of an award winning infinitely flexible no code system, a platform where you can see all of your data in one place and use it to make really big picture decisions. Think of it like mission control for your company. Airtable goes beyond organization and automating repetitive tasks. It lets you use your data to inform strategy, monitor progress, and take action. Every cell is capable of performing hundreds of AI powered tasks like web research or localization and using those results to inform update hundreds or thousands of other cells and workflows in real time. Unlock the true scale of your workflows at www.airtable.com/20vc. Airtable, the infrastructure of innovation. And just like Airtable organizes your workflow data, MetaView organizes your conversation insights. This episode is brought to you by MetaView. Who says hiring has to be fair? Every founder, VC, and exec I speak with knows this. Your ability to hire is the biggest constraint on your company’s growth. But recruiting is slow, it’s subjective, and only getting more competitive. And that’s why teams like Eleven Labs, Brex, Replit, deal, and 5,000 other organizations use MetaView, the AI company giving high performance teams a real unfair advantage in hiring. MetaView’s built a suite of AI agents that behave like recruiting coworkers. They proactively find candidates. They take interview notes automatically, and they help you surface the best candidates in process. For the first time, AI handles the recruiting toil and gives you a single source of truth. That means hours saved per hire and a team focused on what matters most, winning the right to candidates as fast as possible. Don’t let your competitors out hire you. MetaView customers close roles 30% faster. Try MetaView today and get a free month of sourcing at metaview.ai/20vc. After meta view captures what was said, Turing helps you build with the people who can deliver after it. Frontier Labs keep facing the same limitation. Models perform well on benchmarks but fall short once they enter real coding tasks, real tools, and real workflows. That disconnect between synthetic evaluation and actual system behavior is now a core blocker for agentic models. That’s why NVIDIA, Anthropic, Salesforce, Gemini, and other leading labs partner with Turing. Turing is the research accelerator focused on post training reliability. They build realistic reinforcement learning environments, next generation data quality systems built from real world operational traces, and coding datasets that stress models under the conditions where failures matter, state changes, workflow branching, brittle tool calls, and the coding errors that break RL agents but never appear in benchmark reports. In reality, a model may demonstrate correct reasoning in your evaluation setup, yet still select the wrong parameter or mishandle a code update in a realistic interface. Turing makes that failure visible and gives teams the signal they need to fix it. For labs advancing agentic systems, Turing provides the structure required to understand why these failures occur. To find out how, visit turing.com/20vc. That’s turing.com/20vc. You have now arrived at your destination. Alex, dude, it’s been eight years. I’m hoping that my question asking ability has gone up in terms of quality in those eight years. Now listen, I wanna start. $15,000,000,000 you raised today, and I was just looking at that. And I was wondering, in an age of venture today, do you have to go really big or go crafts and very small and boutique to win in venture today?
Yeah. I mean, I think this sounds like a bad word when I say death, but there is this kind of death of the middle that happens to a lot of asset classes in general. In venture capital, it was a tiny, tiny asset class at the beginning. Right now, it’s gotten bigger, but it’s really more of the end state of a lot of these companies is huge. I mean, Sequoia used to brag about, I think it was like 20% of the market cap of the Nasdaq was Sequoia companies. Millions of, like, you know, Apple and Oracle and all of these these amazing names. They’re very, very big. And companies go public much, much later today. So the ability to deploy more capital, more money into kind of venture capital, which is no longer, you know, kind of sidetrack here. Series D didn’t exist in, like, 1992. Right? It’s like that was an IPO. Like, companies would go public. I think Amazon went public at, like, a $600,000,000 market cap or something. Like, that was the norm. There was no Series I, Series K, Series W. You’d raise Series A, raise Series B, raise Series C, then go public. And consequently, venture firms back then were very, very small. But also, the exits tended to be quite small as well. If a very, very good scenario is you have a company that goes public at a sub billion dollar market cap, it’s like, and you get five of those a year. Like, you you can’t raise lots of money. But now the opportunity is so much bigger. The five biggest companies on earth are all technology companies. If you rewind twenty years, I think they were all banks. If you rewind ten years before that, they were all oil companies. If you rewind ten years before that, they were all Japanese companies during the Japanese stock market bubble. But the opportunity in technology is so much bigger, especially because these companies you could keep investing venture capital dollars later. I think that’s one of the main If you look at the money that we just raised, almost 7,000,000,000 of that is for the growth fund.
David George has got a big appetite.
Well, exactly. But this is the point. It’s like if companies went public after the Series B back in like the 1990s and like the average IPO was 50 to $100,000,000 of capital raised, you know, the the strategy would be a little bit different, but the world has changed dramatically and the opportunity size is so much bigger. And now you have technology companies that kind of pervade everything. It’s like you’re either if you if you are a large company today and you don’t use software at your core, you’re going to get eaten by somebody who does use software at their core and then kind of reverse engineers into whatever product or or service that you promote.
Every LP says the canonical wisdom and the theory of venture, as you scale, performance goes down. Do you legitimately think then that with the expansion of these markets, you can maintain five x plus net funds at scale?
Well, I think the difference though is that imagine that you’re an LP and you have a billion dollars to invest. Would you rather get would you rather invest $50,000,000 and get a 5x on that? Or would you rather invest all billion and get a 3x on that? And the answer is you’d rather get a 3x on a billion than a 5x on 5,000,000. Or one of my good friends is this guy Mickey Malka at Ribbit. I was lucky to be an investor in his fund one personally. And it’s like, that was like a 55 x fund on I think it was like an $85,000,000 fund, but 55 x? Like, that’s insane. But, you know, at some point, you could ask Mickey this too. It’s like, you’re better off with like a five x on, like, a very, very large fund. Like, the harder thing to do is to just return gross dollars, period. Like, that that’s what LPs actually want. It’s amazing to get a 100. Like, I’ve I’ve had two funds that I’ve invested in. One is Mickey. This other one is this fund called Angelpad, which was, kind of like a third rate I don’t wanna call it third rate, but it was like it was not you know, there was Y Combinator, and then it’s like there was Angelpad. It was just like this this small little experiment. That was a 120 x. I got a 120 times the capital that I get. DPI. How big was the fund? I think it was $8,000,000. But this is the thing. It’s like, that’s incredible. Your point is very valid. Like, can you get a 120 x on a $2,000,000,000 fund? Probably not. I’m I’m I’m willing to, to bet you that you can’t get a 120 x that. But you can return far more dollars if you’re very, very good. And this is the question that you originally asked was, and this is why I called it the death of the middle. Like my view is most asset classes, you either have to be a large generalist or a small specialist. And the hard thing is to be like a mid sized generalist because then you’re largely going to lose to like the big generalists or the small specialists. So like, you know, Ribbit, as an example, like they really focus on fintech. That’s how I know them well. Like that’s a specialty. They’re not trying to do everything. Or Kazakh in Latin America, like, they are focused on a specialty, and they can be small. Like, they’re not trying to do everything across the entire planet. The entire job of venture capital is to find, pick, and win investments. If they’re good investments, the winning is very, very hard. And the winning therefore goes to the person that is like the bet like, you you have to sell. Like, this is a sales
Intro
job. You know this, right? You have an entrepreneur. They’re amazing. They don’t come along very often. This is the best entrepreneur you’ve ever met. You have to convince them to take your money. And how do you do that? You have to say, I am the greatest person in the world to help you, which means I have this amazing specialty, and or I have all these things that I can do for you. I’m connected to everybody on the planet given the scope and scale of my kind of general generalization, right, like, on the big side.
If I’m just like, hey, I kinda do a little bit of everything, and I don’t really know that much about your business, and I’m not that big and can’t help you that much, it’s just you’re gonna lose. That’s why the death of the middle is what tends to happen for a lot of these asset classes. Like, and then LPs, they want to chase returns. It’s also sometimes hard to reach LPs. So, like, you know, the the big generalists kind of gobble them up or the small specialists that that generate very, very good returns will will gobble them up as well.
I have so many things to say. The first thing I do just wanna say is Mickey Malker, you mentioned. Mickey, when I was 18, helped me and agreed to be a mentor of mine twelve years ago when it was You’re great gentlemen. Obvious. I had no idea why he spent time with me, and he’s been incredible to me ever since. He always taught me, you’re never won or lost. You’re only ahead or behind. Keep playing. Yeah. And I love that. You you mentioned that about kind of the scale of dollars.
And, actually, wouldn’t you rather do two five x on two fifty than, I don’t know, 15 x on 10 or whatever it is? Yes. But there’s an opportunity cost of dollars. And for an endowment fund, they are able to put it into the smaller fund. And so do you accept with that then that you just scale out of certain LPs and it’s no longer the best risk adjusted place to put money then?
Well, bet I I I think it’s a obviously, you can’t you can’t disprove a an an unknown future. But I would posit to say that if you were trying to find, pick, and win the best deals, and maybe you disagree with me on, like, the kind of the small specialist or the large generalist, but who wins the best consensus deals? Every now and then, there will pop up a non consensus deal that everybody thinks is terrible. Nobody wants Sequoia doesn’t wanna do it. We don’t wanna do it.
You don’t wanna do it. Nobody wants to do it. And then it ends up being a thousand x, and then somebody who is not the best known venture firm, you know, ended up winning that deal or being sold that deal, I should say. And then it ends up with a with a great return. But a lot of the best deals will go to the best firms. Like, that’s what’s very different about venture capital than, like, private equity. Like, if if you and I are trying to take a public company private, KKR and I’m Black Blackstone, both trying to, you know, take over RJR and Nabisco or something like that, they’re just gonna sell to whoever offers them the highest price per share.
I mean, they have to. Whereas in venture capital, as you know, you have to win the hearts and minds of the entrepreneur and win that deal. And a lot of the best deals are somewhat obvious. Like, it’s not surprise like, everybody wanted to invest in Uber. Everybody wanted to invest in Facebook. Like, it was self evident that these were very, very interesting companies. May maybe when the price gets high enough, there come some doubts in people’s minds like, oh, I don’t know if I want to invest at 87,000,000 pre for the Series A of Facebook, but everybody wanted to do it at 20,000,000 pre.
There are a lot of companies that people don’t want to do at any price. But the reason why I’m saying this is I I don’t necessarily think you could take it as a given that a small fund will outperform a large fund. Now I think it has the capability mathematically. Like, again, if you’re if you’re Mickey and you invest in the Series A of Coinbase and you have a very, very, very small fund, of course, you can generate a bigger multiple of that fund. That’s just, you know, algebraically true.
But the best deals in fintech, like Mickey gets to do them because he’s a great firm, and he has a much, much bigger fund right now. So I that that’s the thing that I think it’s hard to know. I mean, it’s like, again, I I agree with you algebraically. I would put my own personal money and I do. Right? It’s like I invest in our funds. Like, I would put my own personal money in funds that have, you know, kind of the small specialist or the the big generalist because I think that’s where the best returns will be.
Can I ask you, when you think about the best returns, what is the multiple of your best return, give or take?
For a single deal, there’s a seed deal that I did probably marked up at, like, 200 x right now.
You said about consensus deals, and I immediately thought of actually an Andreessen deal, which is like eleven Labs, which was the most nonconsensus deal ever at seed where it was like, you’re competing with OpenAI. You’re in London. It’s a pre seed. It was very nonconsensus. When you look back at your best deals, have they been consensus or nonconsensus?
Well, I think but if you look at eleven, the entrepreneur was pretty consensus. Like, it’s like, alright. Marty’s super like, that whole team is incredibly talented. Sure. But the pre seed and the seed, a lot of people turn down. Yeah. But I I think our job tell me if you agree with me, is we find the smartest people in the world that have very high agency. Like, there’s been this thing going around about agency. Agency, how do you define it? It’s like people will they’re not gonna be told what to do.
They just take matters into their own hands. This is a very rare trait. Right? Like, you obviously had this trait when you could have just done the the normal thing for a 19 year old to do or however you were you were younger than that when you started. I was
17.
Yeah. Yeah. It’s like, what you did is not normal. You had agency and said, I am going to not do the normal thing. I’m gonna go, like, email every famous VC to death and get them to talk to me. Like, you know, it’s pretty incredible what you’ve done. That’s a very rare trait. You find people like that that are hopefully experts in their domain. And I think that this is why the specialty thing that I mentioned is very, very important. I believe that there is a certain level of consensus around who has agency and who is an expert in the domain.
Like, if you if you talk to an amazing entrepreneur, it’s like, wow. This person knows everything about this. They’ve studied it for decades. They’ve read every book about it. They’ve talked to every entrepreneur who’s tried this before. You have to give them money. That’s our job. Our job is to find these people, give them money. It won’t always work for sure. But I I I actually don’t agree that, 11 was a nonconsensus deal. Like, if it was a high enough price, if it was not a seed, if it was like, okay, it’s a Series B, they have $500,000 in revenue, and it’s shrinking every month.
Yeah. Of course, it’s not gonna be consensus.
That was gonna be my question, which is like, at what stage does that no longer hold true? You know, the Series A partner who leads our Series A fund is like, oh, the seed guys have it easy. You know, amazing founder. Great. Let’s roll the dice. For us, it’s not quite enough. There comes that series is it the series No. No.
I agree. Like, at some point, reality it it converges with reality. And if if my my kids and I have been watching, Silicon Valley, the show, and, like, there’s that famous scene where it’s like, wait. You know, they got know, the the Marc Huebids character is on the phone, and he hears revenues. No. No. No. You can’t do revenue. You have to be pre revenue because then you’re a pure play. So there is this element. I mean, the way to explain this financially is we buy out of the money call options.
You know what a call option is. Right? We are buying out of the money call options and we hope they expire in the money because this is how I explain to people, like, why it is that a Series A that has a million dollars in revenue and is losing $10,000,000 a year is, you know, worth $100,000,000 Of course, it isn’t worth $100,000,000 What you’re doing is you’re buying 15 or 20% of the company and hoping that eventually your call option expires in the money. That’s the thing that you’re doing.
So eventually, that value converges on, like, the equity value. It’s like, oh, what’s the discounted cash flow? Blah blah blah blah blah. Like, once it gets closer there and it’s not a binary thing. Right? Like, at the seed, it’s like, okay. Out of the money call option, this guy or gal is very, very smart. I wanna buy 20% of whatever they’re doing, and hopefully, it expires in the money. And, like, they’re the smartest person I’ve ever met. Like, we do these deals a 100 times a day.
We all do them a 100% of the time. Consensus, nonconsensus, like, there isn’t really anything to be consensus or nonconsensus on. Right? It’s just like, this is a very, very smart person. It only becomes nonconsensus, to your point, when the price goes up high enough. Because I think most people have the same viewpoint of this is a very, very high agency person who has studied history. Like, there’s a there’s a memo that I wrote internally for our firm about how to invest in people. And I think you want to invest in people that can materialize labor, capital, and customers, especially today where people get paid a fortune to stay at OpenAI or Anthropic or Meta or any of these companies.
If you quit your job to start a company and you can snap your fingers and five people follow you tomorrow for a 50% pay cut, that’s pretty magical. Like, that doesn’t happen every day. So that’s the materializing labor. You also want to make sure this kind of goes into consensus, non consensus part. Like, is this person really good at fundraising? Like, are they telling a good story? Can they convince people like me to give them money? Oh, wow. They really can. That means hopefully that n plus one, n plus two, n plus three rounds will be a little bit easier.
They will converge on reality in terms of numbers for sure, but they have the the thing around raising money. And then this is more of an enterprise focused thing, but can they get their first five customers, which is as hard, if not harder, than getting their first five employees because imagine this company Toast. You know Toast? It’s the restaurant POS company.
Yeah. I love them. Dude, I’m a vertical SaaSner. This is like I
know. I love vertical SaaS. Right? But, like, imagine that that you’re Chris at Toast. You start this company. You go to a restaurant and say, hey. I want you to use my my product. And the restaurant asks some very good questions. Like, okay. Well, how much cash do you have left? It’s like, I have a week. Okay. Interesting. How many other customers do you have? Zero. That’s impossible. How can you pull that off? If if you are this rare breed of person that can materialize labor capital and customers, and then I have kind of two sub appendages after that, I really, really like people that have studied the history of the space.
And I say this because the best entrepreneurs that I’ve met, they have learned everything about the space. To show what a great investor I am, when I was a when I was running my company TrialPay, I met with, I think I think Patrick Callison. I know a lot about payments. I’ve been doing, like, payment stuff since 1997 on the Internet, which is which is kinda early stages, for for Internet online acceptance of credit cards. Meet Patrick, and, obviously, I passed on doing the seed round of of Stripe because I’m a genius.
It was called dev payments at the time. I I was not in the drusen Horowitz, so don’t hold it against It didn’t hurt our DPI, and and luckily, the firm invested in them. But two things. You know, I I asked Patrick, you know, where are your customers gonna come from? Because everybody uses Chase payment. He’s like, oh, my customers don’t exist yet. It’s, like, the stupidest answer I’ve ever heard, but obviously, it was genius. But number two, what really did impress me is that, you know, he knew everything about the history of the payment systems.
I think he actually went out to go meet Dee Hock, the founder of Visa. John Collison gave me a book on, like, you know, one of those Springer yellow, you know, academic textbooks on the origins of the payment system. Like, just they had studied history so much. Same thing for Vlad at Robinhood, studied history so much. Same thing for a pervert Instacart, like, you know, went out to go meet the founders of Web Van. This is a very, very classic trait. On the other side, I will meet people that will start a company almost exactly like TrialPay or almost exactly like Affirm.
And I know a lot about these two companies because I started them. Right? And they’re like, oh, what what was TrialPay? Or, oh, I’d never heard of this. And it’s like, come on, man. Like, how are you you’re gonna spend ten years of your life building this thing, and you really should study history. Brian Chesky at Airbnb studied everything about, you know, bed and breakfast and hotel industry in the eighteen hundreds. Like, this is a very, very classic trade. So let me just finish with this.
So again, labor capital customers, study history, and then my favorite book of all time is The Count of Monte Cristo because it’s a story of revenge. The reason why this is so important, if you know the book, it’s by Alexandre Dumas. Edmund Dantes is wronged. He’s sent to prison for, you know, bogus reasons, for supposedly being a Napoleon supporter for, like, seventeen, eighteen years. Eventually gets out, becomes the richest person in the world, but doesn’t give a fuck, if I can use that language. Just does not care.
He wants revenge. Like he wants to destroy his enemies and just like conquer the world or just really destroy his enemies. And you need that kind of motivation because going back to fund size, if somebody offers you a $100,000,000 and you’re an 18 year old kid, that is transformative. You’d have to be an idiot to turn that down or you have to want revenge or redemption. Revenge redemption kind of same thing. And I find a lot of the best entrepreneurs, they have that going. Like they want to prove they’re better than everybody else.
They they had some childhood chip on their shoulder or, you know, they were wronged at their last company. You know, like, Duffield has this hostile takeover of PeopleSoft. Of course, he starts Workday, and he’s like, fuck you, Larry Ellison. Like, there there’s always that kind of energy. So the catamata Cristo thing, I I don’t know how to describe it, but, like, the motivation has to be beyond I wanna make $50,000,000 because if that’s the motivation, like, it’s not gonna work for our fund size. I I love seeing that that fire.
And and again, like, a lot of the most successful companies that I’ve seen, they always have that. Like, Renault Laplanche starts LendingClub, fired from his own company. He’s made tons of money. Doesn’t give a shit. He starts a a competitor called Upgrade. No no accident that the company’s called Upgrade. It’s like an upgrade over you MFers. Right? Starts Upgrade. Upgrade has a multiple of the market cap. It’s probably, like, worth 10 times more than LendingClub now. So that that’s a very, very classic commonality.
I wanna stage the questions there because there’s so much to unpack. You said there about kind of you love them studying history, and you said about passing on Stripe. That was my concern, which is there is a level where you can know too much. I think I know quite a bit about lending. Now I know beginners beginners compared to you, I but know quite a bit about lending where it’s quite easy for me to say to see a lending business and go, fucking horrible. It’s a hard market.
I don’t wanna be there. Look at LendingClub. Look at the market cap there. Very dismissive. As many were with Stripe when they knew payments. How do you prevent yourself knowing too much that it’s a negative?
I think this is a great question, and this is the number one thing that that so I I do a couple of things. Number one, if it’s like an ad tech company, I know a about ad tech, know a lot about payments, I will force somebody else to join me for the pitch that is like a beginner’s mindset mind. So I I think that’s one is just like have a sparring partner internally that has that, you know, what if it works? You always have to be like, what if it works?
So that’s number one. Number two is I like to ask the entrepreneurs, like, what is different? And the thing that’s different, like, the reason why Patrick and John made Stripe work partially is it’s like they just believed that a great number of new companies will be created, and they’re going to pick the best product and they’re going to have the best product. And actually, this informs a big part of my investment thesis now. I mean, I call it greenfield, but there’s a saying that I use a lot, is the best companies have hostages, not customers.
Right? It’s like, you’ll appreciate this if you’re an enterprise SaaS guy, right? It’s like the best companies have hostages, not customers. So if there’s a company that has something marginally better than Workday, right? They’re not gonna go like Workday has hostages. They don’t have customers. They’re not gonna go be able to sell GE and say, oh, wow. I love you two y c kids. Like, I’m totally switching my h r I s from shitty Workday to amazing, you know, AI, whatever y c Silicon Valley h r I s.
Never gonna happen. But if the rate of new company creation is high enough, those new companies will pick the best product. And they’re like, oh, wow. I could use Workday, but I’m not a hostage. So I’m free. I’m going to pick this other thing. Like, I I was the first investor in Mercury, the the SMB bank, and, like, until SVB failed, they they never stole a customer from SVB. But if you’re a brand as long as the rate of new company creation is high enough, you can play this game that I called Greenfield Bingo, where it’s just like you pick every software category, you build a better version of that, and then you’ve got a shot.
And that’s what Stripe was. I mean, like, that’s why it worked. If the rate of company creation is very low, like if I build a better EHR, like electronic health records company, it’s just not gonna work because the rate of new hospital creation is too slow. Right? It’s it’s like you can’t just you can’t just sell to the new companies. But you can do that for payment processing. Right? You can do that for ERP. Like, you do it for a bunch of other categories.
So you will look for greenfield bingo markets where the rate of net new companies being created will supplant the slow slow sales cycles of the larger enterprise customers who will eventually switch?
Or maybe they don’t. Right? It’s like, who cares if they switch or not? Like, it’s like, they’ll hopefully die because they’re using shitty software. Like, the the fact that they won’t switch is actually indicative of, like, their mantra on everything. Like, they they want to use old technology or they’re hostage to old technology. Let’s just sell into the future. And, you know, betting on the future is more fun. I mean, like, one of the things that’s very, very challenging is you go start a company, you recruit 10 hotshot people from Meta, Google, whatever, and then they’re bored to death.
Why are they bored to death? Because they can’t do anything. It’s like they were used to making little tweaks that a billion people experienced every minute, every hour, and now they’re at a startup. And the startup, it’s been one and a half years, and they’ve made one sale. That’s quite typical. And then like you end up losing your talent because it’s boring. Like you can’t actually do anything. So, you know, it’s nice to have these markets that can ramp quite quickly and you kind of want the market to be a tailwind for you.
It doesn’t mean that there’s not value in kind of creating big companies that sell big you know, startups that sell big software products to big companies. You can do that. It’s just it’s a much, much harder thing culturally for Silicon Valley, I think.
Shows are a bit like venture, which is the majority that you do are actually not very good. And then you get the once in a while episodes like this, which reminds you why you love what you do so much. You know what I mean when you meet that special founder. Oh, a 100%. It’s so great when you have a show like this. My question to you is you said hostages, not customers. How should I think about that then in a world of Cursor or any of the foundation models, your Anthropics, or your OpenAI’s, where they are customers, not hostages?
They can switch very easily. The promiscuity of customers has never been higher. How should we think about that?
It’s it’s a really good question. I mean, this is where behind every technology revolution and kinda go back to like silicon, then the personal computer, then the Internet, then kinda Internet two point o where you could write to the Internet things like things like Facebook YouTube, then mobile, then cloud. There’s always been an infrastructure layer and an application layer. So, you know, you go back, like, the infrastructure layer for PCs was, I don’t know, like Microsoft and Apple, like the operating system players. The infrastructure player for the Internet was like Cisco and Akhund.
The infrastructure player for everything AI are all of these backend model providers. And then there’s the application layer on top. So if I do something, we were talking about ask Leo, right? Like that’s an application layer company. If I were Vlad, I would love to be promiscuous with all the backend models because I should be. And then the infrastructure players are like, oh, shit, you know, all of our customers are being promiscuous. Let’s figure out how we specialize in a particular area. I imagine that, like, that’s why Anthropic, imagine, has gotten very good at coding.
But it’s kind of the application layer tends to be a little bit stickier. But the problem is you might have 9,000 competing companies at the application layer, in which case you’d rather be the infrastructure layer. But the infrastructure layer is pretty hotly competed as well right now. So I don’t know. I mean, it’s the more relevant question for me is in 2025, the ability to go create a software product is so easy. I published this chart with the help of my friend Chat GPT of how long it took VisiCalc, which was the first spreadsheet that came out in 1979, to lose to Lotus 123, and then how long it took Lotus 123 to lose to Microsoft.
And it took about five years from VisiCalc to go from 100% market share, because they were 100% market share because they were the only one in the first, to 50% market share. It took about fifteen years after that for Lotus, which had 70% market share in 1986 or something, to almost zero. This would normally take a long time. In 2025, this can take weeks, which is bonkers. Right? Because all of these layers of past innovation have kind of like almost like a Russian nesting doll kind of concentrically grown against each other.
So because you have cloud and because you have mobile, everybody in the world has a smartphone in their pocket. All of those smartphones are connected to infinite computing in the cloud or near infinite computing with a dearth of energy in the cloud. And now I build something marginally better, I can get into the hands of a billion people overnight. And that’s just so, so different. But I think on the hostages point, if you build a system of record, right, like, it’s just so hard to switch.
That has not changed. But now I can go compete. I could build a software product in, like, two weeks that would have taken me two years. So that’s going to massively increase the pressure on the application layer. So the best thing that you can do if you’re an application layer company is hopefully have something that, I hate to say it, but it’s like you want to have hostages. You want to have all of the data in your company. You want to have all of the data of your customer in your product and then just make sure that I this is, I think, the thing that we talked about last time I was on your show.
It’s the battle of every startup versus incumbent is whether the startup gets the distribution before the incumbent gets the innovation. Right? So what do you do? You go boring. You build the most boring thing possible. Nobody really cares about it. Nobody’s that interested. I mean, that’s why I love Vlad. Ask Leo is like, who cares about procurement? Ah, it seems kind of stupid. It’s not attracting 9,000 competitors. But hopefully, you get all of the data in there, and then you can build these interesting things on top, and you’re not gonna attract that much competition.
And even once you do, it’s just it’s it’s kinda hard to switch. So I don’t if that answers your question.
It totally answers my question, but it leads to several more questions, which is the theme of this discussion, which is the speed with which it takes to compete with the incumbent has reduced, and you are able to take customers or market share quicker than ever before. With the extension of private markets, do we not have a liquidity problem then? When we look at I don’t wanna pick on anyone, but but fuck it. I will. Say like a company like Sneak in the cybersecurity market, which has been going it’s now getting eaten away by new incumbents before it’s had the chance to return shareholder money and liquidate.
And so do we not have a fundamental challenge here where companies that have not gone public yet or not provided returns to investors are already getting eaten away because that compression time is is shorter?
Yeah. I I I think this is a big challenge. I mean, if you look at all of the unicorns and how many conform to rule of 40, it’s pretty small. Many of them are shrinking. So probably of the unicorn class, I would bet that maybe 5% will ever be able to go public, which is kind of shocking. Right? And then because so much money has gone into venture capital, you have this problem of I mean, I I I will say on the record, I hate massive secondaries because it kinda turns you from the cat of Monte Cristo to, like, the, you know, whatever the opposite of that would be, like the, I I’m now gonna go vacation in Cote D’Izzur or something.
Like, that’s going to now say, I I am now at a fundamental disconnect from my employees and my investors because I’m rich and they aren’t. That’s not a good setup. You kinda want everybody be to be in the same boat. The the reason why I mentioned that is, like, you have some companies where it’s like, you know, founders take in a $50,100,000,000 dollar secondary. That’s fine if they just turned down a $10,000,000,000 acquisition from Google and they’re the kind of Monte Cristo and they wanna go for it.
Like, okay. That that can make sense to me. If you offer that to all employees and all investors and everything else, I don’t love the idea of it’s like people are looking at this as spreadsheets. There was a there was a fund in 2021 that did like a massive secondary into one of my companies. And, I I was really against it, which made me super popular with the founder, can imagine. They were like, oh, we own 4% of the company. We wanna own 8% of the company because 8% is more than 4%.
I’m like, dude, I totally agree with you. 8% is more than 4%, but you have now introduced moral hazard into the equation. Because if you give somebody generational wealth, you can hope that they’re gonna kind of maybe like, the upside would be, like, they’re gonna swing for the fences and go for Because otherwise, I would be happy selling for a billion dollars. Now it’s like, fucking, I’m gonna go for a 100,000,000,000. Okay. That that’s great. Now we’re all aligned. But the other option is now they don’t care about getting liquidity for investors.
They don’t care about getting liquidity for employees. They’re quite comfortable. Like, you don’t wanna have that set up.
I I don’t think that’s actually the problem. I mean, this was in greatest respect. I think we assume the next strategic steps will be the same with that money versus without that money. Right. And I think what we’ve both seen is the foie gras ing of startups, and then they do 10 things, not two things. None of them work. The team is disincentivized. They break up. Culture sucks.
Moral hazard. That’s the economic frame. Right? It’s moral hazard on both primary and secondary to your point. Necessity is the mother of invention. So if you have a $100,000,000,000 in the bank, when you really should only have $10,000,000 in the bank, you’re like, oh, I’ll do 50 things. I’ll have, you know, multiple layers of people that I don’t need. And it’s interesting. I I find that a lot of people when when I when I think about, like, the the difference between conservatives and liberals or people that believe in big government, small government, a lot of it comes down to the disconnect between more input is better output.
Like, a lot of people just believe this. It’s like, okay, you know, the IRS, the Internal Revenue Service, like, oh, you know, there’s a lot of tax fraud. We need to hire more people. And if we if we have more people, we’re gonna do a better job catching tax fraud. Or like, oh, the military. We should have more people in the military, because that way we’re gonna do a better job. Whereas actually, as you know, it’s like sometimes there’s addition by subtraction. Like, if I have a smaller team, there’s less communication necessary.
You’re gonna come up with more creative ways of actually solving the problem. You’re gonna solve it with technology. Whereas if you have, if if you just say, I’m gonna solve it on the input layer, I’m like, address my constituents by saying, I’m gonna just allocate more money to this thing, you’re gonna get a worse outcome versus I allocate less money with great people. This is the key. So you can’t just say, like, I’m gonna I’m gonna allocate less money and give you the worst people on on earth and then no.
But it’s like, you know, take take tax fraud. I would rather have two people at the IRS than 80,000 people, but have those two people be Noam Shazir and and some other, like, super genius. Because if Jeff Dean and Noam Shazir are running the IRS, like, oh my god. Like, that would be so much more efficient. But the input cost would be, like, one one hundredth as much, and there’s always that disconnect.
I actually am in trouble with my team, because I just tweeted today, Series A is the worst place to be investing. Company progression is minimal. Price is four to five x, the seed price, and we’re paying a 150 to 200 x ARR with little signs of product market fit. Do you agree with me? It’s the worst place to be investing.
Well, think the problem is that there’s the nomenclature which kind of varies company to company. So like when I started TrialPay, we raised our Series A was 3,100,000 on 9,500,000 pre. And that was expensive. I remember like arguing with the partner at Battery. It’s like, this is the most expensive deal we’ve done. This was 2,006. At SiteAdvisor, I think we raised 2.7 on 2.7 pre, so even lower. Hence hence, he was right. So now you have a pre seed, a seed, a seed extension, a seed extension two.
Like, what is a Series A? Right? There’s not like this That’s one form of Series A. Another form of Series A is like, I just did a Series A where the company had like $10,000,000 of ARR when I invested in it. So it’s just all over the place. So I think it’s just hard to kind of cast a generality. There are certainly ones where like, I used to call this the Series B trap, but again, think the nomenclature has shifted.
Like, I would have agreed with your team if you called it the Series B because at that time, there was a seed, there was a Series A, and the only difference between Series A and Series B is that you increased your burn and built infrastructure and kind of scaffolding. So it’s like, I have a company. I have customers. I have signs of product market fit. I know now I should hire an HR team and a marketing team and all this other kind of shit that doesn’t actually have any kind of impact on the on the, you know, metrics of the company, and that was the Series B.
Right? And then it’s like, why would I invest in a Series B? Because I get half as much ownership and nothing has changed vis a vis the Series A. So yes, there’s a class of Series As that look like that, but I would say, like, of the Series As that I personally did in the last year, like, most of them have been like, holy shit, like, revenue is really scaling, and these numbers are insane. And, you know, those were those were Series A’s, and I get very excited about those.
But it it just I think your mileage varies because the the nomenclature is all over the place.
Do you worry about the quick succession rounds? When you look at companies like a Rillet or a Tacto, there’s just, like a week later, there’s another term sheet for a Series B with with literally no change at all, and it’s buying the cool option. Do you worry about those rounds?
Well, I did one of them. Right? Like, I’m on the board of Rillet. I did the Series B, and it was sixty days after the Series A, and that that’s unfortunate. I would have rather done the Series A or rather done the seed, of course. But if you find the winner, it’s also very expensive not to do that deal. So
That’s so interesting. That that I’m so pleased because I I’m so sorry, dude. I totally forgot that you did the will it be. But, like, you gotta pay up for that. Going to the point, you’ve got to assume that the next strategic steps will be the same and be as focused even though you have just foie gras the company. Sorry. Probably here.
Well, but this is where I think the motivation of the founder is very, very important. So going back to, like, I mean, Nick, who’s the CEO of Real Ed, I think he does have a bit of the count of Monte Cristo in him. Like, and it’s like, he doesn’t want to go take this money and go spend it on extravagant things. So I I think you have to make sure that there’s kind of like founder capital fit. Nobody ever talks about that. It’s like, okay, if I give you a billion dollars, what will you do with it?
And 99 times out of a 100, the answer is going to be bad news. And not even bad news around waste, but just bad news in terms of mindset. Like, it’s another form of moral hazard where it’s like, I’m never forced into making hard decisions because I have infinite capital. And you kind of want to force people into making hard decisions. And, like, I live this. I mean, I’ve I’ve tweeted about some of these things during my my painful existence at TrialPay where, you know, I think we had to lay off 70% of the company, and then we eventually turned it around and sold it to Visa.
There were all sorts of tough times therein. But, you run into these, like, very, very challenging scenarios, and it’s like option a is bad, option b is bad. You have two choices. You’re at a fork in the road, and there there’s a funny expression by by Yogi Berra, this famous baseball player in the in The US. When you come to a fork in the road, take it. It’s like, what what does that mean? He said all these, like, things that make no sense. But what a lot of entrepreneurs don’t realize is that the worst option you think you have two options, but there’s a third option, which is making no choice at all.
That’s the worst option. You’re better off, like, just choosing something, and both of them are bad. This option is very bad, so therefore, I don’t wanna make any choice at all, but you’re better off making a choice and committing to something. And if you have infinite capital, you could just kinda continue this. I’m not gonna make any I’m just going to sit here and just like, alright. Well, I have more money. You know, my my ARR is more driven from the, interest on my my giant $100,000,000 cash reserve.
If you if you’ve sorry for for rambling on this, but, like, this kind of goes to, like, founder capital fit. There’s a certain type of person where it’s like, I give you a lot of money, and I know you’re still gonna make decisions very, very quickly. I know it isn’t going to distract you, and, really, it’s just benefiting me. I hate to say it selfishly, but it’s benefiting me is in that now I’m on the cap table. I own part of this amazing company, and it’s not gonna fuck up the company.
The the moral hazard is the number one thing. It’s like, now it’s going to fuck up the company either with too many too much primary, or it’s like, oh, I know. I won’t I won’t mess with the primary. I’ll just buy secondary. It’s like that also has, you know, existential risk, as I mentioned, for a certain class of person. There are other CEOs that like, you know, one of my one of my CEOs did a very, very big secondary in 2021. Like, he and the company is is hit on some tough times, but, like, he has stuck it out, and, like, he’s doing a phenomenal job.
How do you get comfortable about growing into that price that you have well overpaid for? So, again, we’re we’re super candid, and this is why I love where I’m at in my stage of life now versus where I was at eight years ago because it wasn’t kind of the same. I lost to Seema on your team for ask Leo. She’s amazing. You guys are amazing. Hugely well deserved. You guys did not pay more than me. I hate this bullshit VC thing where it’s like, oh, they overpay.
No. It was, the same. You just beat me fair and square. Well done. I reflect on that, and I’m like, you idiot. You should have paid 300 and doubled them. Because when I map out eighteen months’ time, I looked at their revenue projections. And in eighteen months’ time, when they need to go raise, their revenues would have been so much that I could still see a three x on that 300. That’s how I get comfortable with paying up for something. How do you get comfortable preemptively paying up so much?
I mean, I think it’s the same it’s the same math, but it’s it’s dangerous on both sides. Right? It’s like, I always had this speech that works, you know, maybe one time out of a 100 that I give it, which is kind of like the Spider Man speech of, like, with great capital comes great responsibility. And if you raise it too high of a price, you’re fucked because I lived this. Let me tell you my story. I raised it this price for my Series C. Then I had, like, Google that wanted to buy me, but it was, like, at the same price, so therefore it tanked the thing.
And then my next round, everybody asked me what was the price of my last round, and nobody wants to invest. I I go tell this story. I can introduce the founder to 10 other founders that that have lived the exact same thing. It’s like, wish I hadn’t raised my round at such a high price. But who starts a company? Let’s just think about this for a second. The people that start a company are irrationally exuberant. Like, if they thought that the company was gonna fail, if they thought they had a 0% chance of raising a Series B, they wouldn’t start the fucking company.
Right? So that’s why the speech doesn’t work. Because I always tell people, like, hey, the reason why you shouldn’t raise your Series A like, there there is a deal that I guess we should have done, candidly, because, like, this company just raised it, like, a billion dollar plus valuation, but we turned it down. Company had, like, less than $1,000,000 in revenue, and they wanted, like, a $200,000,000, whatever, post money Series A. It was just so crazy. I was like, look. You guys haven’t started the company before.
I have. Not to, like, pull the the old bald guy card, but, like, your Series B, like, even if you have $20,000,000 in revenue, you’re fucked. Like, you have to be able to walk into a room. The number one question you’re gonna get is, what was your last round price? And people should be wanting to compete to pay three times that price. Like, they waffle like, oh my god. What will it take to do this deal? And if you say like, hey. My lap my Series A was raised at 1,000,000,000, and I have a million dollars in revenue, you have ended the conversation.
Nobody want the psychology of that round is all wrong. So I give this speech, and it just doesn’t work, unfortunately. But but I think the smart entrepreneurs, they kinda have this risk balancing thing. It’s like they’re irrationally exuberant. That’s why they quit their job and started the company. But they realize, oh, wow. There actually is a good point around, like, my whole team now says we have a $100,000,000 in the bank. They’re gonna be wasteful. That culture is something that I don’t want. Yeah. I guess I would want the option of maybe selling the company for a billion dollars and having, you know, Salesforce come in and say, what would it take to buy the company?
What was your last round price? Because I will tell you a 100% of the time in every m and a conversation, in every fundraising conversation, the number one question, the first question is, what was your last round price? And if it’s like insane, they’re like, oh, that’s not good. I and then then as an entrepreneur, you’re like, oh, no. No. But I would take a discount because my company sucks. You can’t say that. It just destroys the entire conversation. It’s just game over.
Can I ask, going but there’s just staged conversation, otherwise, I’m gonna lose the thread here of what I wanna ask you? We we mentioned kind of the the realit element in the successive rounds. I hope it’s not too forward and you can say, dude, don’t want this in there. But, like, you do the successive b because you lose the a. When you sit down and we’re sitting down as a team, how do we reflect on that? When you reflect on, like, a real it review, what was the takeaway from that when you sat down?
Well, I mean, there are a lot of deals that we lose because we’re not willing to kinda go the distance on price. That is a common thing where it’s like, did we really lose it? Like, this has happened to us a number of times. It’s like, alright. We wanna do the deal. This is or, again, like, consensus and non consensus, a lot of times, the difference is just on price or ownership. If we had shown up and said, hey. We’ll do 10% of this company for an a round.
Like, we could win every deal. It’s actually, I think, one of the one of the competing elements that has shown up, I’m I’m interested to watch how, Standard Capital does. This is kind of the YC offshoot. 10%. I’m going to take 10%. That’s very, very bad for big funds. Because in in order to make the math work for a big fund, you have to have high ownership and you know that your ownership will get depleted or will will get diluted over time as option pool expansions happen, even if you take your pro rata in every single successive round.
So, I mean, we can win all these deals, but a lot of times, you know, I I am much more preoccupied with ownership at the A because we’re buying an out of the money call option. And the reason why I kind of tell this story is because there’s something that I’ve used as a benchmark, is if you’re hiring people and 100% of the people say yes to your job offer, what can you infer from that? Number one, you could infer that you’re the greatest hiring manager of all time.
But number two, you might be overpaying. Would you agree with that? Like, you only get 50% or 20%, like, how do you know to test this hypothesis? And if you win a 100% of the deals, that’s a very, very good sign. You should try to win a 100% of the deals that you wanna do. But if you’re winning them with very low ownership, you’re probably not testing, like, this kind of efficient frontier of how far you can go, and you want to have more ownership. Right?
That’s our objective. The founder wants less dilution. The investor wants more ownership. The two are perfect complements of each other. Eventually, you realize, I don’t want to be a fucking idiot. Like, this is the answer to your question. Right? It’s like, alright. I wanted 20% in an a round for a company that doesn’t have that much traction because, you know, I’m I’m at Andreessen Horowitz, I’ve got this big fund and everything else. And then it’s like, no. No. They’re gonna do a 15% round or whatever.
It’s like, that. Don’t wanna do that And then it’s like, holy shit. They’ve run away with the market. This is the market leader. I’m not going to be stupid. Right? I’m not gonna just say this is why, actually, by the way, I love talking to investors because investors, like, most humans do not have the capability to admit that they were wrong. Like, they just wanna, like, say, I’m right. I’m saying, right. If you’re an investor, you’re just gonna lose money all the time. The most valuable insight that you can have as as an investor is the self reflection to say, I’m an idiot.
And if I’m if I’m a hedge fund guy, it’s like, I get to sell. It’s like, oh, I thought I was a genius, you know, buying Herbalife, blah blah blah. Like, oh, wow. This company’s not good. I’m gonna sell everything. Versus, no. I wanna prove to the world that I’m right. Well, I’m gonna lose all my money. So it’s the same thing here, but for upside. We can’t sell. But we can say, like, this is the winner. I want to be in the b at a lower ownership because, like, this is the fucking winner.
But if I was your partner, I would be pushing you with all my might to take the 10% at the a and have a higher win rate, specifically with your profile of fund. Because I get it in other funds where you don’t have the ability to follow on and lead the b, the c, the d. You may even not be able to do the pro radars, in which case I I get that thinking. But when you can, why are we not having a higher win rate and doing 10%?
Well, mean, this is actually one of the things that we looked at because I kind of feel like my job here is kind of quasi portfolio manager. So I run our apps fund, seven different funds. And my job is to make sure that that fund is as successful as possible. We’re winning the right deals, that we if we just say, Hey, everybody, win every single deal. Just win every deal. It doesn’t matter. That’s all I’m going to optimize for. We end up with 5% checks in every Series A.
You know that’s not gonna work. We can win every deal that way. How far on this curve can you go? Again, it’s the exact inverse conversation that an entrepreneur is having where like, I want a tier one investor. I want, you know, an amazing specialist. I want whatever I want on you know, this person that I want on my board. What is the least amount that I can give up to get an amazing person? And they would love to get 5% a round deals done, but they’re like, oh, wait a minute.
Like, that’s not gonna work. And, like, that that’s the the tension between the two. So I I I agree with you, but I think, you know, where do you it’s like Zeno’s paradox. You know what that is. Right? It’s like, you will never get to the destination if you go halfway each time. Like, is it 9%? Why Why not do it at eight like, what what where do you draw the line on that? And I
the I would simple math of where do I think and this is a very dangerous and bad answer to your question because the biggest mistakes in venture have been when you underestimate market size and you don’t see what it can be. But I’d sit down with you and I’ll go, okay. 10% entry, 5% on exit, assuming a 50% dilution. Do we think this can reasonably be a $15,000,000,000 company? If so, that is a number that returns the fund with comfort.
I know. But the problem is it’s kinda garbage in, garbage out. It’s like you could always say that for something because otherwise, you’re like, oh, wow. I underestimated the size of the black car market. It’s hard. I mean, the way that I do it, kinda to be pithy about it, is, like, we either wanna buy any percent, any percent of something that is absolutely working or high ownership of something that could work. If you really kinda draw a line of like the you have to bifurcate the market.
It’s like Facebook, if you look at that round, I think Greylock put 25,000,000 into Facebook. Actually, I think the round was maybe 25,000,000 at 500. I think that was the b round for Facebook. Be split between Meritech and Greylock, but that was absolutely working. Right? So it’s like, are they getting 10%? No. Are they getting 5%? No. Like but it’s like the market winner and things can go wrong, but, like, holy shit, it’s absolutely working. And, like, I don’t see that many things that look like that, but when they when you do, you throw away all the rules.
Or it’s like, this is not working, but this person looks like a super genius. They have high agency. They can get they can materialize labor capital and customers, but it’s not working yet. Right? So, like, I have to have high ownership in order to take to correspond with that level of risk. And those are the two types of deals to do. The danger is you say every you could say, oh, well, this has a million dollars of ARR, and they’re ahead of the number two player that has 900 k of ARR.
Therefore, it’s absolutely working. Now you have to have a high bar on the absolutely work. Like, this is this is crushing this is the fastest growing company we’ve ever seen. It probably comes around once every decade. Throw away the entire rule book, and you should be fine owning 5% of that company because it’s it’s an absolute winner.
I’m so pleased that you said about the fastest growing company that we’ve seen. We’ve never seen growth rates like we have today. I’m a little bit stuck if I’m honest, and so I’d love your advice. When we look at companies going from one to 20 to 30 to 40, there’s actually quite a few that do that today. Before that was completely unheard of. How much weight should we place on revenue growth today versus not? And is there a world where these companies that are going from one to three or four, three or four actually used to be good, had left behind?
If if you wanna know the the three investment thesis that I have for our fund, I’ll tell I mean, this is exactly what I told LPs, and and we’ll answer your question in a second. I think we have we have three. We have one, which is we invest in system like, I call it greenfield bingo. And most of the green like, these are existing software companies, but selling to new companies as opposed to, you know, selling to the hostages that will never leave. They tend to be systems of record or vertical operating systems.
So like the reason why Rillet, I love that company so much, that’s never gonna grow like zero to a 100 in like a month, but it is very, very sticky revenue. Like once you’re on like Netsuite has hostages, not customers, they’re not gonna leave. You know, if this can if if Rilla can sell into every new company, like, they’re gonna do great. The revenue growth will be slower, but it will be so sticky, and they have infinite option value on adding, hey. Do you wanna have a collections AI agent that runs on top of, you know, overdue invoices, blah blah blah?
And that’s optionality on top of your sticky system of record. So number one is greenfield systems of record. Number two, and this goes to the fastest growing companies in the world that you’re talking about, is software that does the job of labor. These are new I’ll give you an example. We have a company called Eve. They sell into plaintiff attorneys. What is the dominant software product for plaintiff attorneys? It’s called Microsoft Office. Right? Like, there isn’t one. There’s so many category. Like, what’s the dominant software for, like, manicures?
Like, there is you can pick all these areas where there’s no greenfield, bink there’s no there’s just nothing. But because the thing that you’re selling is effectually effectively in lieu of labor, the way that Eve works is if you’re a plaintiff attorney and you get paid on contingency, you’re not charging by the hour, you have a case where you will, with 100% certainty, win a thousand dollars. Will you take that case? The answer is absolutely not because it’s not worth your time. So you turn down all the small ticket cases because you want the big ticket cases.
But now you have a software product that can do all the work and help you win all the small ticket cases. Like, you’re absolutely gonna do that. These are the things that scale like crazy Because instead of hiring somebody for $80,000 a year that I cannot hire, I can now hire this software product for $20,000 a year. And before I was paying $0 a year for software. Those are all the things that are hyperscaling. But to your point, if they don’t eventually back into a system of record, like if it’s something that just does does like outbound phone calls with an AI agent and it’s a thin wrapper on, you know, OpenAI or plus 11 Labs plus something else, it will attract so much competition.
It won’t be sticky. The conversation that I have with every entrepreneur that has one of these companies is like, how are you going to make this sticky? How how are you going to, you know, pardon my language, get the hostages? How do you hold these customers and make sure that if you are I’ll give you an example. I’m an investor in a company called Salient, which is probably the market leader in outbound loan servicing for autos. And this is a conversation I had with Ari. It’s like, what if Talient shows up?
The competitor is salient. The make believe competitor is salient. How do you keep your customers? And they say, hey, we’re gonna do it for 50% cheaper. And I loved his answer, which is I’m this is my wedge. Right? I I recognize that this is this is, you know, not super sticky if we’re just making outbound phone calls, and combining these these different layers of the stack because we’re not the infrastructure layer, but we are going to back into a software product. And that’s I love that answer, and it’s true.
Like, that’s what they’ve done. So that’s that’s my answer to your question is they might not be able to pull it off. Like, every company that that says they’re gonna do this, they might not be able to pull it off, but you have to back in this mega revenue growth that largely is predicated on doing the job that people would do before, and that’s why you can grow so quickly into sticky software product that is not that dissimilar from software products of yesteryear. So it’s like, number one is, you know, greenfield bingo.
Number two is, like, software that does the job of labor. And number three, I wrote a post about this, but I called it the walled garden. And I’ll give you two examples of this. There’s a company in Europe called Vilex. And Vilex was started by this entrepreneur, basically bought up every legal record in Spain, physical legal records at the courthouse, put them into digital form, and then started selling them to law firms. I think he he got this to, like, something like 20 something million dollars of ARR after twenty five years.
But then added AI, and it grew, like, something like five x. I mean, something crazy. Why? Because OpenAI let’s just say OpenAI is purely it’s a sentient being. AGI is here. OpenAI has done it tomorrow. GPT 5.5 is here. If they don’t have if you say, hey. Help me draft a response to this, like, Spanish court case blob, like, they don’t have the data. They can’t do that. Or OpenEvidence has done this for health data. AGI is here. OpenAI has it. Amazing. I tore my Achilles.
What do I do? I’d rather have GPT 3.5 plus infinite data of everything around medical science, which is walled garden that OpenAI has, versus like sentient being that has no data whatsoever. So that’s also a very, very powerful way of building something sticky. So if you if you find a company that has grown like this or grown like this, but just cannot be removed either because of the data that they have that is unique to them, which is, you know, honestly my hope with Ask Leo, or has, you know, kind of sticky system of record, like, it’s just not going anywhere versus other ones, like, you might take a flyer.
It’s like, wow, this has grown from zero to a 100. They make outbound phone calls, and they’re like, you know, 11 labs plus this plus that, and it was all built and lovable, and it’s amazing. That’s a harder pill to swallow.
I’m so honest these days, dude. I’m too old and ugly to not be honest. We’re in this business called Allo in Germany. It’s like a toast for Europe, but a little bit better specialized to the European market. They’ve got great numbers. Like, five acts from, like, 500 k to 2,500,000, raising their Series A, like, you know, eight or 10 on, memory serving me correct, was a bear. It was fucking horrible. And I was just like, oh my god. The triple triple double double is so dead.
Like, we’re in Lovable as well. That obviously is a completely different fundraise journey. Is the triple triple double double dead? I don’t think so.
No. I I I think I mean, it might it might be harder for a certain set of people that are maniacally focused on, like, growth over everything else. But, like, what really matters is growth and stickiness. And if you’re triple, triple, double double with terrible retention data, that’s gonna be very hard. But if you actually have, again, system of record or in that case, it sounds like vertical operating system, that should not be hard. I love those things. Right? Like, I would much rather have a slower growing, you know, permanent system of record that will never get ripped out than the fastest growing thing on the planet that has 9,000 competitors that are all built and lovable by 17 year olds.
I think there’s no comparison. Mean, there there are plenty of people that would be attracted to both, would be my answer. I’m I’m surprised that it that was it was as challenging as you as you portray it.
We got it done, but I was surprised too by by how challenging it was. Cursor, you mentioned about selling companies that I spoke to David George before the show, and he said one thing he he’s never talked about publicly, don’t think that he’s a phenomenal master on, his advice on selling companies. Ask him about that. I know it’s a bit broad and random, but I do wanna touch on it because David said I had to. What’s your biggest advice on selling companies, having seen so many, and living it yourself?
Yeah. So I’d say a couple of things. You know, this is a very highly choreographed dance. So you can’t just say, oh, I should raise like, so if you’re raising money, you’re like, oh, I should raise money. I have the best metrics ever. I’m gonna talk to five firms, and they’re gonna compete to the death over winning my deal. That Like, was my experience with my Series B at TrialPay. It’s like, oh, so it’s like and and kind of corp dev is like, I’m either raising money or selling my company.
It’s the same thing. Right? No. It’s completely different. If you’re selling your company, you have to spend, you know, in many cases years getting to know people at the potential acquirer. It’s never the CEO unless you’re like, you know, what, you know, Jan Coum at WhatsApp. Like, let’s just say that you have a company, you you do something amazing, somebody at Salesforce should buy it. You would rather go public, but you’re like, oh, you you kinda see the writing on the wall. Like, I’m going to hit a wall in a year and a half.
What you should start doing then is I kinda call it a background process. Like, you know what cron is in in Unix terms, right? It’s like you should have a little cron job where it’s like 5% of your time as CEO should just be, like, getting to know people at the three or four companies that might buy you. You never go say, like, please buy my company. That that’s DOA. You don’t wanna spend time with the corp dev people. Most people are like, oh, corp dev buys companies.
No. They don’t. They execute transactions. If Salesforce buys your company, you’re not working for the head of corp dev. You’re working for, like, this, this SVP who needs who has some hole on their personnel or, you know, knee needs, like, revenue growth in order to get their bonus. There are all sorts of internal mechanics that are going on there. So it’s just this highly choreographed dance of just, like, making sure that you get to the right people in the company, hopefully doing it years in advance, not just going to them when you need to sell your company.
Because there are two independent variables here. It’s like when your company is doing like, the best time to sell, by the way, is your company is doing great. This is the like, the rocket ship is, like, a 100 x year over year growth, and they wanna buy. But rarely does that intersect. A lot of times, like, oh, shoot. We started going like that. Now we wanna sell. But nobody wants to buy this falling knife. So it’s hard to perfectly choreograph this, but, like, the the main piece of advice, spend time with, three or four companies, not under the guise.
Because honestly, like, when I did this at at TrialPay, I wanted Visa to be a partner of mine. I wanted PayPal to be a partner of mine. It was not wasted time. It’s like, hey. You know, PayPal, you should put, you know, on your receipt page, you should put, coupons that we do for this post transactional product that we have and just spend like, I was spending so much time because if I got that deal, right, I I give a shit if they bought us or not.
If I got that deal, it’s worth so much money to us. It’s worth so much money to them. Unfortunately, or fortunately, depending on your point of view, they’re like, oh, wow. This is so valuable for us. We have to buy that company. But it’s like that movie my favorite movie is inception. How do you incept this idea? And again, in that movie, it happens overnight on, like, a flight, whatever, from Australia or something. It really needs to happen probably, like, a year and a half, two years in advance.
A lot of entrepreneurs, they make the mistake of, have to go impress the corp dev person wrong. I have to only interact with the CEO. Sometimes, right, we hosted a dinner for the CEO of Visa, and I sat Zach at Plaid right next to Al Kelly at Visa. Okay. That worked until it didn’t because of the justice department or something. But that can, if it’s sufficiently strategic, you know, these $5,000,000,000 acquisitions that don’t happen very often.
But, like, you know, a 500,000,000 to a billion dollar acquisition, that can happen at not the CEO level, and you just have to spend the time and invest the the time and resources beyond like, and by the way, this is this is the same advice that I give people on fundraising. Right? It’s like, this background process, if you’re the CEO of a company, your number one job is don’t let the company run out of money, which either means you become profitable, which is great, or you raise more money, which is, you know, not as great, but, like, hopefully leads to to to being profitable, and or you sell your company.
So you probably should spend five to 10% of your time, you know, meeting investors in a very casual way so that they know you and they know that you’re a very strong entrepreneur and they can, like, just invest on the spot versus like, this is how I raised my Series D at TrialPay. Had spent so much time with the Greylock guys, as an example. I pitched them, like, after I met Reed, like, 20 times, and it’s like, he knew me. So he he he knew that he trust like, you know, he’s investing in me as opposed to, like, a random dude that shows up, you know, oh, I should raise money because I’m running out and I’m growing.
Let me go pitch five part like, they never would have done the deal otherwise. The background process is key.
Before we do a quick fire round, I just have to ask. You mentioned one element being the labor displacement in the kind of one of the three kind of pinnings that you have. I completely agree. My friend Jason Lemkin said this year will be the year where we see the demonization of technology leaders and that we see labor displacement materially showing up in labor markets. Do you think that’s true? Will we see labor displacement in labor markets materially show this year?
I’m not sure about that. I think in certain areas for sure. I mean, in general, I could even click up a notch, which is if you think about SaaS, broadly speaking, I think there are kind of three types of SaaS companies right now. There are the ones that are almost impervious to everything that’s happening with AI. If anything, it’s a huge tailwind because they’re gonna start being they have the distribution. They’re gonna start adding features. That’s things like Workday and NetSuite and these things where it’s like they have the hostages never going anywhere.
On the other side, have things like Zendesk, right, where it’s like, how many licenses per seat do you need of Zendesk? If now every customer support ticket can be answered automatically, you need zero license. Like, their revenue could go down a 100%. These are very, very different. And then you have things in the middle like Adobe, where it’s like, oh, maybe I now whenever I want a logo, I just go to ChatGPT. I don’t go to, like, the graphics team. So maybe you’ll need fewer graphics designers.
Maybe you’ll need you know, Zendesk, you’ll need fewer customer support people. That probably is true. Right? Like, there there are gonna be certain areas that will get hit harder than others. But what technology has always done is, you know, people shift into other jobs or maybe some people will be a 100 times more efficient. I think you’ll have some cases where labor like, now that you know, take take the Eve example that I gave you. Wow. Now I can do a 100 times as many cases or five times as many cases as I did before.
I’m gonna hire three more people. Or I can now be in business by myself because the software helps me do x, y, and z. I think a lot of that stuff is gonna start happening. I I
I so respect you, but when you look at like a dacagon in the customer support, it’s clearing out. When you look at like a Harvey, another business that you’re in.
I I I don’t disagree with I’m saying it’s not like, that’s why I kind of gave the the example of, like, the three types of SaaS. Right? It’s like, you’re gonna have some totally impervious, and I’m talking about SaaS, not people. If you flip that to people, it’s like, alright. The users of Zendesk are probably going to go away. Therefore, that labor market might get decimated. 100% agreed. On the other hand, it’s like if I’m United Airlines and now I don’t need as many customer support people because now every answer kind of auto answers itself with AI, well, Well, you know what?
I should probably take care of my best travelers better and give them, like, a personal human that will be really nice to them and remember their birthday, and then they’re gonna buy more first class tickets for me. I might reallocate some of that labor to other things because I’m making more money and I no longer have this cost. I mean, Tony Hsieh, who, you know, sadly departed, who ran Zappos, you know, he had this whole thing, which I think is actually correct, which is I’m going to turn most people think of customer support as a cost center.
They should think about it as a revenue center. You should love your customer and make them love you. There’s the story that he would tell around, like, you know, there’s somebody who had something really bad happen and was on the phone with a customer support person. I think her husband died or something bad that had nothing to do with the shoe order. Zappos sends that guy or that that woman flowers. Doing things like that, making your customer love you is something that you can now focus on once you take away the cost center element of something like this.
Or if I’m a law firm, again, I agree with you. Like, you probably don’t need people doing this tedious work, and the number of people doing the tedious work will fall off a cliff. No disagreement. But I would not be surprised to see smart companies start reallocating them. Like, I actually gave a I gave a talk to, the exec team at at JPMorgan about this. Right? They’re like, what part of our business is gonna be least touched by AI? And I said, you know what? Wealth management.
Because what is wealth management? It’s, yeah, it’s hopefully getting good returns for the dollars that you have with us, but it’s really like that relationship guy or gal. Like, And the woman that was running well, was like she, like, stood up in the audience, like, yeah. Yeah. Yeah. But it’s true. It’s like if you have a high EQ and you’re good at playing golf with people, like, you’re gonna start hiring more people like that because that’s how you get more customers, and you you kinda sometimes there will be an opportunity.
The upscaling is not like, hey. Everybody should learn how to code. The upscaling might be like, doing tedious work, like answering know, like looking at knowledge base and then, know, typing that back with lots of typos into, like, the the email response in Zendesk, but actually start going into, like, you know, send customer flowers, like, do get to know that customer really well. Go visit them at their like, whatever for the high value customers that you just couldn’t do before.
Alex, I could speak to you all day. I know you do actually have to work as well. I wanna do a quick fire round with you. I’m just gonna give you a couple of quick statements. What have you changed your mind on most in the last twelve months?
I’ve probably changed my mind well, as I mentioned, you have to be able to change like, it’s more of companies where we didn’t do the we didn’t do, like, the early round, and then it’s like, I’d rather be rich than right. That’s that’s what we often talk about. It’s like, alright. I wanna be right. So we’ve probably done a couple deals where it’s like we passed around n minus one. End up doing around n, but I don’t think I’ve changed my mind on that much. Maybe I would say this idea of private equitizing venture capital.
I wrote a piece. I was probably the first one to talk about this in 2023 around how what you’re going to start doing is you could buy a company and then add AI to it. I think General Catalyst is now A bunch of firms are now doing this. I was the first person to talk about this, and I I called it barbarians at the gate with an AI. I’d probably become more bearish on that just because it feels like just a founder market mismatch. So that’s probably the thing that I’ve changed my mind on the
What product does Andreessen not have today that you would most like Andreessen to have? You mentioned GC having like the fund there that does that roll up play. They’ve got the like consumer performance marketing fund. I can’t remember what that’s called. But what product do you not have that you’d most like to have?
Something around credit for a lot of our companies. So, you know, we have equity products, but we don’t have debt products. And they have very different return profiles, obviously. But every one of our companies, they need you know, General Catalyst actually has one of these. They have a credit fund. Either for customer acquisition or if you’re fintech and doing lending. So that that would be interesting. But in general, we just kind of we listen we we don’t wanna be at odds with our entrepreneurs. Like, there’s a very solid reason why we don’t have that, which is like, oh, you didn’t pay back the bill.
I need to go foreclose. Like, that’s a as as a venture capital firm, like, you can earn a thousand x on a on a winner. You don’t really wanna, like, kind of beat up the, the companies that are struggling, and that’s kind of what the credit instrument needs to do. But I I think it’s a good product.
What piece of investment advice has most stuck with you? So like Josh Krishna once told me, if you’re willing to take less, don’t do the deal. If you’re willing to go from 10 to 7%, like, yeah, sure. I yeah. Why not? Don’t do the deal. What would yours be?
I think it really is find high agency people that know the history of the space, that can materialize labor capital and customers, that are the cat of Monte Cristo, and don’t second guess anything. Give them money, be their best partner, go versus, you know, question the market, question the this. I I think it really is. I’ve just become a 100% convinced this is entirely about people. A 100%. In every round, by the way. It could be a d round. It could be an e round. It could be an a round.
It could a seed round. Can you
please tell Martin Cusato? Because he tweeted and then took the piss out of me. Because there’s this you know, the graph where it’s like, it starts here and then goes up here and then goes down here. And it’s like, you start here. It’s all about founder. And then you end here. It’s all about founder. And here is when you think you’re smart and no market and product. And he was like, you’re an idiot. It’s not that.
It’s all about founder. I mean, you you have to again, it converges on reality at some point in time. Like, there’s gonna be a public company. You can’t, like, tell everybody in the order book of the IPO that’s undersubscribed. Like, I don’t know. The founder’s really good. Like, yes. Of course, it has to converge on reality, but I I think it’s like, it is like materialized labor capital customers. Like, that that’s that’s kinda it for me with the right motivation, which is the count of Monte Cristo.
Penultimate one, what’s your biggest miss, and how do you reflect on it? Like, I miss deal seed round, another one of yours. I reflect on that.
So it probably was one of the first rounds of Plaid, which I subsequently corrected myself for by doing the Series C of Plaid. So I think we invested at 2,400,000,000 for the Series C, and I was debating a $5,000,000 difference with Zach for the Series B. I wanna do it at $1.30. He wanted $1.35. And I think Goldman was willing to pay 200, but he was willing to work with me because of, you know, my my fintech. And it’s like, no. No. 5,000,000. Like, that was just so stupid.
Right? And luckily, I I I was willing to admit that I was stupid and did the next round, but you could see the difference on this is why it’s so important to to do two things, to correct yourself if you’re wrong and not be proud about it. But also, if you really believe that this can be a huge company. And I I was I was burdened by what has been, to quote the great Kamala Harris, of, oh, wow, Yodlee, which had predated Plaid, that went public and had a terminal valuation of $600,000,000.
So, like, of course, this, like, 01/30 versus 135 or whatever the hell we were talking about was very material, but it was so stupid.
I love that unburdened by what has been memo that is yeah. Final one for you, dude. What does venture look like in five years’ time? When we look at the $15,000,000,000 that you raised today, I mean, it is obscene to even think that that would happen five years ago when we go back. What does it look like five years out?
It ends up eating even more of the world. This is kind of going back to to Marc’s essay around software eats the world. That that largely has happened. As I mentioned, like the five biggest companies on earth, they’re technology companies, which was, like, unthinkable in 2005. Like, technology companies were little service providers to big companies like banks and oil companies. Right? Think this momentum of kind of everything becomes a software company. It kind of goes into this like thesis too that I mentioned around software does the job of labor.
You’re going to have all of these areas where it’s like, there is going to be like, you know, Toast and vertical SaaS proved this or kind of V1. It’s like, oh, how is Toast worth $20,000,000,000? You’re gonna have a lot of things like this where it’s like brand new markets that have grown like crazy. AI is now allowing software and technology to do so many things that it didn’t do before, and this is before even things like robotics. Like, if robots actually work, wow. Like, now you’ve expanded the market like another 100 x.
I’m just so bullish on the ability of technology to create enduring value. So, you know, my guess and my hope is that it’s gonna go up into the right.
Dude, I told you this is like banter. You have most shows which are, like, fine, and then you have the once in a while, which are truly special. Thank you for being my truly special show. Really is rare to have one like this.
Alright. And hopefully, I’ll see you in London soon.
But before we leave you today,
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