Why Financial Models at Seed, $5M Seed Rounds & The Fear of Signalling Risk is all BS

Thanks for having me, Harry. Excited to be here.

Honestly, I joined Twitter in 2009. That was my entry point into understanding the world of venture. And so I just started following dozens and dozens of VCs on that platform, going back and forth with them when I had, like, 200 followers, and used that as a platform for eventually cold emailing hundreds of investors, trying to figure out how to move from traditional finance to venture. And ultimately, ended up working for Chris Sacca and Lower Case Capital while I was in business school off of a cold email to Chris, and then diligently following up with him until he gave me some work to do, basically.

I think the number one thing that I learned from Chris was his deference for founders, the absolute respect that he has for entrepreneurs, and how that translates to your reputation as an investor. And the thing that I think is so critical as a young VC, and really, hopefully, that compounds over time, is that reputation is the number one currency as an investor that you have control over. From working with Chris, I sort of developed this hypothesis that if you have a great reputation, that should compound over time, should yield higher and higher quality deal flow, should yield higher and higher quality references from other founders, and ultimately give you the best possible chance of picking the best founders.

There’s a difference between reputation with founders and reputation with other investors. Your reputation with founders needs to be sterling. Your reputation with other investors, ultimately, I think some people take different tacks as to how they appreciate that one way or another. I personally have always felt that if you have a great reputation with other investors, that should hopefully allow you to be brought into other deals, allow that there would be respect that you’re gonna punch above your weight on the cap table, and other investors want you on board.

Maybe not every investor operates that way, but reputation with founders is something that you can absolutely not compromise on.

I think the number one thing is probably it comes down to a mindset issue. When I originally started getting coffee and jumping on phone calls with VCs, I was blown away by the fact that so many investors felt like it was better to see an amazing company and pass on it than never see it at all. And as a 24 year old at the time, that just blew my mind. Like, I couldn’t wrap my head around the fact that you were more comfortable seeing something amazing and passing on it, and that becoming Uber or Instagram or any iconic company.

I sort of had this notion of a as someone who was not doing the job that ignorance was bliss, I would rather not see that deal and not have the sort of regret living with me every day that I missed this thing. I’ve been doing venture now full time for almost a decade. But now as someone who runs their own fund and has been doing this for quite a while, I a 100% understand that feeling where you would much rather be in the flow, you would much rather have seen the multi billion dollar out fund and passed on it than have never seen it at all.

You’re feeding my

for my thematic style of investing.

There’s definitely an allusion here to Lewis Carroll and Alice in Wonderland and sort of Through the Looking Glass. And I think the fantastical elements that are necessary for what some of these founders are building, the sort of suspension of disbelief that’s required for investing in something that’s pre product, pre revenue, pre everything. Sort of the idea that if you put down a pros and cons list for virtually every investment I’ve made, the cons would significantly outweigh the pros. But yet, I’ve still said yes 27 times in the last nearly three years.

That’s where the name comes from.

The fund that I’m currently investing out of now is a $20,000,000 target, and really, I chose that size because it felt like it was incremental from fund one. So fund one was a little over $8,500,000, investing 300 to 400 k pre seed and very early seed rounds. So really 750 k to $3,000,000 rounds. And so I felt like the step up from 8.5 to 20 was iterative enough for me to essentially go from 300 to 500 k, really 400 to 500 k incremental step up in check size, allowing me to invest in 30 companies versus 24, but still maintain the exact same entry point.

I think you can if the ownership is sufficiently high enough. My goal with the fund was to make sure that every investment can move the needle and return the fund with a billion dollar outcome. Fundamentally, I believe if you’re investing out of a $50,000,000 fund or smaller, a billion dollar outcome has to return the fund, or this job becomes even harder than it already is. All things considered, I would have rather had more, like, 27 companies than 24, but I was operating within the constraints of a smaller fund size.

With Fund I, I need to own 86 bps at exit of a billion dollar outcome to return the fund. My average ownership was close to 4% on average at entry across fund one. So even if I get diluted by 65%, which I expect to over the life of that investment, I’ll still own well north of 85 bips. In fact, if I get diluted by 60%, I’ll actually own 1.7%. So a billion dollar outcome, two x is my fund.

That’s part of the strategy. I don’t operate amongst the regular way seed investors or at least the the multistage seed investors that have driven up the price of seed valuation significantly and are still doing so. My strategy is to make sure that I’m part of the first money into rounds. Ideally, first yes. I literally own the domain firstyes.vc. It redirects to the Looking Glass website. The deals that I’ve done over the course of fund two have been 6,000,000 cap, 8,000,000 cap, 8,000,000 cap, and I’m stretching on one now, which is an 11,000,000 cap.

This is all first money in the companies over the last eight months.

20 is definitely not the easiest fund size to raise for. I’ll put it that way. But really, it came down to I’m trying to build a firm over the next twenty to twenty five years, and I wanted fund two to be an iterative step up from fund one. And I felt like going from eight and a half to 20 allowed me to incrementally increase my check size in such a way that I was very comfortable doing so. LPs don’t require a major leap of faith to believe that I can go from writing a 325 k check to writing a 425 k check on average, promoting 4.2% on average, toning five and a quarter to five and a half percent on average.

These are baby steps in terms of increases that I felt like were very easily under writable. Now in terms of LP type, yes, that fund size definitely plays below the sort of normal threshold of institutional LPs. I generally think 40, really 50 is kind of the floor for a lot of those groups. And so I’m living in a world of smaller fund of funds and family offices and high net worth individuals who sort of look and act like a family office, but they don’t have a family office sort of entity created yet.

That’s generally the majority of LPs.

That’s a big lesson learned from fund one. I started having conversations, and people were like, send me sub docs. And I was like, oh, no. I don’t have sub docs ready. Now I on the side of formality in terms of data room and materials, and I write an investment memo for every single investment I make even though it’s just me reading them. So every single one of those investment memos is in a data room that LPs can pour over and see my thought process at the time of investment.

Every LP update I’ve sent out, I write a very lengthy letter every eight weeks that’s very transparent on every company in the portfolio to LPs. So potential LPs can see how I communicate transparently and regularly with with my investors. And then obviously, of course, deck and an appendix to that deck and statement of investments and all the necessary legal legal docs.

I do sometimes wonder if there’s like a paralysis by analysis. My philosophy as an investor and founder of this fund has always been to on the side of providing more information to LPs. And if they so choose not to engage in it, then that’s fine. It’s the same way I I tell founders after a first meeting, if they have a data room, just send me everything. I’d rather not be drip fed one piece of material after another and rely on me to ask a question that, like, unlocks another door for me to see something.

Just throw it all at me, and I’ll pour through it. Do you send the deck ahead of time before the call? If it’s required to start to get a conversation going, for sure, either through an a warm intro or because someone insists upon it. I’ve never walked through a deck on a call. I don’t think that’s really necessary as an investor in the same way that it is as a founder who has, like, screenshots and competitors to show and revenue charts. Like, I just don’t think that that’s as necessary as a as a VC.

No. Of course not. My general view is that a financial model, if a founder so chooses to have one, it’s a great level of insight into what they think the drivers of their business are and the levers that they can pull over time. But ultimately, I am fully aware that what I’m underwriting is a 100% going to change and not occur as it was. I mean, I was an investment banker in a previous life. I know I can make a model say whatever I want. It doesn’t matter what the model says.

I just wanna understand that the founder knows what the drivers of their business may end up being over time.

I started the process, I spoke to our mutual friend, Semmel Shah. Semmel said the only people that are gonna invest in your first fund are people that know you. I was like, I invest in founders all the time that I don’t know. He goes, this is different. He was almost a 100% correct. Every single LP in Fund I is someone that I knew personally over my prior years and years in and around the early stage tech ecosystem. If they weren’t an LP I knew before the Fund I process, they came from an intro from an LP who said yes to Fund I and then introduced me to somebody else.

That has continued to be the case for Fund II as well. What type of LP composition do you have? Fund I, it’s it’s a lot. It’s probably North Of 80. Okay. North

many meetings did you have? It’s hundreds. I’ve had I’ve had hundreds of meetings with potential LPs ranging from the individual who wrote a 10 to 25 k check into Fund I to the family office that’s done 10% of Fund II and everything in between.

Virtually all. There’s there’s one corporate investor in fund one who’s in also in fund two.

Higher net worth individuals, more official family office types in fund two that either didn’t know when I was raising fund one or that wanted to track for fund one, and then newer fund to fund style investor that have emerged.

One of the biggest surprising things to me from over the course of building this firm is how people interact with money and make decisions around money, particularly individuals. The way that people think about investing in relation to their net worth, in relation to risk is fascinating. I’ve been shocked by the dollar amounts that some people have committed, both way smaller than I expected and way larger than I would have anticipated. It’s generally indicated to me that you can’t come close to sizing up, at least on an individual LP, like a high net worth individual LP.

You can’t handicap what their check size is gonna be unless they explicitly tell you, because I’ve been shocked both directions up and down. When it comes to professional allocators and family offices, my strategy is very inside baseball VC. And so if you don’t have an appreciation for the nuances of venture capital as a business, then I don’t think you’re gonna say yes to invest in my fund. You might not necessarily appreciate the strategy that I’m employing.

Yeah. It was

I’ve broken it for the right people who have the right network, who I really wanted to be involved in helping me get off the ground and build this business.

I think that’s the absolute hardest part of fundraising as a fund manager. LPs smell a bluff a mile away. That deadline’s gonna come and go, they say, oh, what happened to that date? And so the way that I’ve tried to demonstrate a sense of urgency is really by demonstrating compelling momentum. So it’s consistent updates and conversations with LPs to share progress and markups from fund one, sharing new investments on fund two, who has coinvested with me, that they might be LPs in that fund already, using those investors as catalysts for demonstrating that there’s inertia with this fundraise and that they should be a part of it.

That compounding of updates and progress to me is the best way to demonstrate. Less of a sense of urgency and more that, like, I’m putting one foot in front of the other every single day. There are other people that are getting these updates too, not just you.

That was a huge lesson learned from Fund I. I was fundraising during Fund I through lockdown and peak COVID. I had a lot of GPs invest in Fund I, and they said, do a first close as soon as you have whatever number I had, which I felt it was way too small to do a first close on on Fund I. And they’re like, just get going. Just put points on the board. Just be in the game. And I, frankly, probably waited too long to do a official first close on Fund I.

What did you put

I think I was trying to get to at least 50 to 60% of the Fund before doing that first close. Now my rule of thumb to other founders would be get to 50% of your minimum viable fund size and then do the first close. If your minimum viable fund size is 10, you gotta get to five even if you’re trying to get to 20. Your minimum viable fund size might not be 50% of your target, But if it is, effectively, you’re trying to get to 25% of your target to do a first close.

And then invest like you’re not gonna get beyond your minimum viable fund size. Because if you do, you’re gonna end up with a portfolio that’s way too small if you end up with a number that’s a lot lower than your target.

I would say you need to figure out the phenotype of your LP quickly. Figure out who the LP is that’s going to understand your business. It’s really no different than a founder who needs to find the VC that really understands their business. LPs are obviously a little bit more challenging to put into a box, but I’ve definitely can describe the LP who’s a good fit for me way more easily now than I could three years ago. And so when I talk to other LPs and I ask for intros, or when I talk to managers and I ask for intros, it makes it a lot easier for those people to say, oh, I know exactly who is a good fit for you.

The strategy that I’m pursuing of being a pre seed investor that takes a much more institutional approach to investing in discipline is definitely uncommon. Most sub $40,000,000 funds, really, especially most sub $25,000,000 funds have way more investments. They write way smaller checks. It’s not necessarily spray and pray, but it definitely is more of a scattershot approach. I just don’t deviate from the strategy that I’m pursuing at all. I don’t make any compromises around it. I’m never gonna be like, oh, I got a 75 k allocation here.

Yeah. I’ll do that one. I stick to my target check size range. I stick to my target ownership, which is an average ownership across the portfolio. It’s not like every single deal has to be in there, because I know that some are gonna be higher, some are gonna be lower. It really comes down to a lot of what I learned investing at Anchorage prior to starting Looking Glass. I was surrounded by credit investors who took a very conservative approach to investing. Credit investors think everything is gonna go wrong.

VCs underwrite everything going right. It required me to be incredibly buttoned up when I evaluated companies, when I went to investment committees to pitch them, and I think that mindset actually not really all that helpful at the pre seed stage. I think that actually is quite helpful when it comes to instituting a set of guide rails and allowing me to focus on what I invest in and what I don’t invest in.

I do think that having this set of rules allows for when you do wanna make an exception, it’s very clear why you’re making that exception. Right? Like, the more constraints you put in place, the fact that when you do want to or need to make an exception, it means that it’s reached some level that you thought might be previously unattainable. So for instance, in fund one, I have an investment that I made that was outside of my valuation range. The round size got larger after I had committed.

I wasn’t gonna back out. I still got my 300 k allocation, but the round size got larger after I committed. A bunch of people piled in. I wasn’t gonna tell the founder, oh, sorry. I’m not in anymore because you raised four and a half instead of three. Like, if anything, the optics were this deal was even more compelling now than it was when I said yes. And this team is by far the best executing team I’ve ever worked with in a decade of being in venture, bar none.

And so I obviously am very happy that I didn’t compromise on my valuation rules, and I stuck to that yes. If I believe that I’m getting adversely selected because I’m getting my allocation, then I should probably just quit doing this job. Right? Like, I have to have the confidence to believe that I’m getting into deals at the target check size that I want, and founders are selecting me because they believe that I’m a great fit for them, and I believe that this is a great company.

If I thought that every investment that I made was open to me writing the full amount that I wanted to because they weren’t getting anyone else to say yes, I definitely couldn’t go to sleep at night. My philosophy has been be a first yes, lead a round, set the terms, commit early, and then basically put on my investment banker hat and become placement agent, help bring in the rest of the money into that round by going to a select group of investors that I feel are highly complementary to me that might not be household names, but I know are gonna be awesome value adds to this business.

I guess it depends on how you define lead. Like, I saw Jason Lemkin tweet the other day, like, a lead investor is the investor who writes the next check when nobody else will. If that’s the only definition of a lead, then no. Like, I’m investing out of small funds. I can’t necessarily justify writing follow on checks. To me, that’s not necessarily the only definition of a lead. To me, the definition of a lead is one that helps catalyze a raise, the one that sets the terms, the one that’s the first call, the one that’s the most responsive to that entrepreneur when things are going terribly.

It’s the investor who helps compel other investors to say yes to that company both at the time they’re investing as well as in subsequent rounds.

No. In fact, I’ve had general catalyst, true ventures, tribe, lower carbon, forgetting others that have come in after me after I’ve said yes and have not altered the terms of those rounds.

I haven’t found it to be a challenging check size. So as I in Fund I, ranges were $7.50 k to $3,500,000. It’s $4,000,000 round sizes. I got what I was looking for in virtually every single investment. I don’t think it’s that unfriendly. I’ve come into rounds with a three hundred to four hundred k check after there was already a lead, so it didn’t prevent me from getting what I was looking for. A quintessential round for me would be 1.5 to $2,000,000 at a six to ten post down the middle of the fairway, you know, structure for me.

If I wanna write a 500 k check, if there’s a $1,750,000 round and they already have a quote, unquote traditional lead who’s taken a million, I can still get 300 to 500 k, and it’s on me to compel that founder to give me that allocation. It’s on me to sell them on why I should have that much of the remaining 750 k. I’m not bashful about preemptively having founders give references to other founders.

It’s a key part of why I’m investing in a thematic way is that I can build instant credibility and rapport with a founder building in health care because I can probably point to half a dozen other companies in the portfolio that are super relevant to what they’re building that might be customers. If I do cold outreach to a founder, which I’ve done in probably half a dozen in investments I’ve made so far, I immediately am validated in their mind because I have a portfolio of very relevant companies that they care about.

It’s not a home run game. It’s a grand slam game. There are gonna be companies that inevitably go to zero. Out of 24 companies, there’s only a few that make me lose lose sleep at night right now, call it three years in. But ultimately, I know that the vast majority of returns are gonna come from 20 to 30% of the portfolio, and I’m comfortable with the inevitable zero or less than one x that’s gonna make up 40 to 50% of the portfolio, call it eventually eight to ten years in.

No. When I look back, I acknowledged something, and I thought it could be mitigated over time, and it was not. With every investment memo, the last slide of it is a risks and mitigants section. And so I’ve usually put three to four risks and three to four counter mitigants that could mitigate that risk over time based on what I’m currently seeing at the time of investment. It’s a good check for when a company inevitably fails or isn’t doing well for me to go back and look at, was this a risk that I was aware of, but I underwrote it and was comfortable with it anyway?

This might change over time, but right now, at this moment in 2023, with these particular companies, the things that are keeping me up at night are things that I was aware of at the time of investment that I was just comfortable with and thought would get mitigated over the life of that company. And in a couple instances, they have not.

I mean, I’m a single GP, so my bandwidth is constrained. I can’t be a generalist. I can’t see every deal. I can’t chase every hot company. The thematic investing that I do is the fundamental driver of all of my sourcing. It allows me to be top of mind for other investors when they share deal flow because they know what I invest in. They know the constraints that I invest around, and they know that I could be a good fit because I invest in health care or climate or education or small business.

They know that I should be top of mind for them compared to a generalist firm who they might not necessarily immediately think of when they’re building a syndicate. It allows founders to come to me directly. I invest in cold inbound. I respond to every single email even if it’s simply to tell a founder this isn’t a fit for me. Again, reputation matters. The deals that I’ve done that have been cold inbound have been explicitly because they’re looking for investors that invest in relevant themes to what they’re building.

Those have been great companies. In fact, those are some of the best companies out of Fund I. And then with my own cold outbound to entrepreneurs, it allows me to build immediate credibility and rapport with them because I can point to a bunch of companies in the portfolio that are very relevant to them. When I build a syndicate of investors around a company after I’ve committed to lead that round or just a first yes to that round, I go through a list of literally hundreds of investors that I have relationships with that I’ve tagged based on stage and category that they invest in and check size and a bunch of other notes that I have for them.

And I send that curated list over to the founder and say, which of these do you want introductions to? Give me a blurb, and I’ll send this note over. I know that I’m not the only investor that operates that way. And the ones that go to the top of the list are the ones that I know that are hyper relevant to what that company is doing.

They’re too narrow with who they go out to. They don’t actually realize that there’s lots of other investors that are not the household name pre seed and seed funds that would be phenomenal investors on the cap table. I’m talking about the really nichey health care investor that only does health care, that’s based in Nashville, that nobody knows about unless they’re a health care investor. And this founder just thinks like, well, I should just go to up and down, you know, the Midas list, and that’s that’s my lead list.

And it’s like, well, no. You need to have a much broader funnel, and you also need to recognize that there’s a lot of strategic value that an investor can bring to the table. You might not have ever known that investor before this process started, but I’m gonna put you in front of them. I’d say the second point that they don’t think about is they don’t appreciate that the partner at the fund matters. They just think about the fund as a giant entity and don’t realize that there are personalities and motivations and bureaucracy and all sorts of things that internal dynamics of any large organization and venture funds are no different.

The individual partner that you get to really matters, because he or she might specifically be looking for a company like yours. Their personality might really be aligned with yours or be really counter to yours. And I can help steer a founder to the right individual at a certain fund in a way that they probably aren’t thinking about.

I don’t know how you define seed these days. Right? I saw a announcement in Dan Primer’s newsletter yesterday that a company raised a $7,300,000 seed round. That’s not a seed round. To me, that’s someone who combined an a a seed and an a into one round. And maybe they’re combining, you know, two pre seeds and a seed and calling it a $7,300,000 seed. The announcements don’t give you any signal into the dynamics of these raises.

That’s fair, but those aren’t Looking Glass founders. Right? Like, the founder that rolls out of bed and says, I’m starting a company and I’m leaving Stripe. That’s not a Looking Glass founder. The person that has, like, eight term sheets lined up before they get their coffee at site class. When you raise 5,000,000 at 25, you have a target on your back before you’ve even written a single line of code.

But raising one and a half to two at something high, maybe 12, they’re taking less dilution than maybe a first time founder who has zero track record and needs to raise one and a half at six, but they’re doing so because they understand that there’s real discipline that’s necessary to execute well, and there’s significant margin for error when you raise at a lower number. I’ve had nine companies raise rounds since the start of q four. Six have been priced up rounds. Three have been safes with higher caps out of 24 companies in Fund I.

All of them have been able to do so because they raised at very sensible levels. And so the ability to raise an up round when your original round was quite sensible is very achievable when the market is hard like it is now. It’s not achievable when you raise at 15 to 25 before you’ve written a line of code.

You’re describing a founder that has an uncanny level of discipline. It’s easier said than done to say raise five and operate like you have one and a half. You and I both know that most people don’t have the willpower or self control. I would much rather invest in a founder that says, I’m gonna raise two and a half and operate like I raised one. My general rule of thumb is you need to have at least twenty four months of cash gross burn, not net burn, when you raise your a round that I’m involved in.

I assume the fact that they’re probably gonna overspend a little bit, so it’s probably more like twenty one months, let’s call it twenty four months of gross burn. If you can’t find product market fit by being that disciplined over a two year period, you probably didn’t deserve to raise more than two and a half or two or whatever the number was in the first place. Giving someone $5,000,000 to and four years to figure it out, to me, is a luxury of a billion dollar venture fund.

That’s a luxury of the multistage fund that knows that a $5,000,000 check doesn’t matter or doesn’t move the needle for them, and it’s an option for writing a very large check into the Series A to level up their ownership.

The way that I think it’s trending is, you know, hopefully smaller funds, more specialized funds. Even firms that have a lot of AUM, you’ve seen them spin out dedicated funds that are focused on certain categories. And I think those smaller funds ultimately will outperform. And smaller doesn’t necessarily mean 50. Right? It could mean two fifty or 300 compared to, you know, 2,000,000,000. But I think what you’re ultimately gonna see is a very distinct bifurcation of relatively smaller vertical oriented, thematic oriented funds, and then behemoths. And if you’re just in the middle, it’s very tough to to stand out.

I think the winners are the ones who are willing to adapt, and the losers are people that have nothing distinct to offer when it comes to compelling a founder to take their investment. Or we have a boatload of cash. We could probably lead every single one of your rounds if that was what was necessary. I don’t really know that there’s anything in the middle. What happens to softballing in Tiger? They’ve been quiet this year. When I see an announcement that Tiger is involved in a round, it’s shocking versus, you know, in 2021 where I think there was one time in pre max newsletter where they, like, led seven deals in a single newsletter.

I think people are returning to what they’re good at.

Start. I think Ed and Elliott are phenomenal investors, very disciplined on how they get involved and what they invest in. I’ve coinvested with them in a couple times at a prior firm, and they were phenomenal to work with. They’re investing in a lot of stuff now that I don’t touch and will rarely touch. And so from a diversification perspective, it would be great to be an LP in that fund. If you could do a Series A firm, which would you do and why? Benchmark. They’re still the standard in my opinion.

As someone who knows what they’re good at, doesn’t deviate from it, I have a ton of respect for the people that I know personally over there, and I just think they’re outstanding investors.

I take Lux’s growth fund. I think that firm is incredible. I think the work that they do is backing some of the most innovative and thought provoking companies. And, they’re investing in things that I will rarely ever invest in. It’s pretty challenging to argue with the returns that they’ve that they’ve generated over the last few years. What have you changed your mind on in the last twelve months? Signalling as relates to who is involved in your round. I used to be very, very averse to multistage firms being involved early with smaller checks, and I thought that there was signalling risk.

Oh, well, if you have this family office in versus this other investor, then the optics of that don’t look great because nobody knows who they are. And what the last twelve months have shown me has raise capital from reputable, reliable sources that align with your ethical standards and that are providing clean terms. Beyond that, it almost doesn’t matter, at least in this current venture climate, who you raise from, because raising it all is an accomplishment right now. To me, all else being equal, you’d rather have, you know, tier one investor involved.

They provide great optics, great signal, etcetera, etcetera. But, like, the signaling risk of certain investors being involved in my mind is completely out the window, because ultimately, you can overcome that with good execution.

in 2020 to 2022? Companies that have that were raising, you know, multibillion dollar valuations at, you know, thousand x ARR is the craziest. Like, just as a pure, like, investment multiple valuation perspective. Ultimately, though, the the craziest thing that happened was just the level of fervor and the pace of investment that you saw from funds that are now course correcting to an extreme degree, and it’s and it’s really hurting founders. The level of slow playing of funds now, just extreme whiplash for entrepreneurs. What

you mean

founders are getting hurt. I think the number of companies that are having a hard time raising seed and a rounds right now, like, hey. We’ve got, you know, 500,000 of ARR, and we wanna raise, like, $3,000,000. Like, the level of companies that are raising seed and a, I think, are unjustifiably being punished because VC is deployed way too quickly in 2021. And now they’re like, well, we deployed hundreds and hundreds of millions of dollars in twelve months. Now we need make sure this fund lasts for three and a half to four years because our LPs have told us that.

And so you have investors doing way fewer deals than before. They’re now actually doing diligence, which slows down processes as well. And they’ve reserved an increasing amount of their dry powder for reserves for existing portfolio companies to keep them alive versus net new deals, because they’re gonna have existing companies that are doing well that are gonna struggle to raise for no fault of their own, and so they need to have dry powder to keep those companies afloat.

And so when you add up all three of those things, that just means there’s a lot less capital available for new deals, and a lot of companies are gonna struggle to raise, not because their businesses aren’t doing well, but because there are so few people that are actually investing right now.

Yeah. I think very challenging to advise founders right now as to what to expect in this market. Like, what benchmarks matter? What milestones matter? What gets around done versus not done? The whiplash that’s been experienced from 2021 to 2023, it’s challenging. Founders shouldn’t necessarily rely on venture dollars to keep them afloat. Founders should figure out, alright, how do we extend runway? How do we grow revenue faster than expenses? How do we get to profitability? Even if we’re not profitable, how do we reduce our burn to such an extent that we’re able to get through 2023 and 2024 so that we have runway well into ’25 and we can fundraise in 2025?

That’s an exercise I’ve done with at least half a dozen founders in the portfolio. How much cash do you have at the end of this year? How much cash at then at end of twenty twenty four? If you don’t raise any dollars at all until 01/01/2025, make sure you have at least seven months of cash at that point. But I do think that it’s a healthy shakeout for the ecosystem. It’s the way things used to be. And when I say used to, I mean, like, a decade ago.

But I think the fervor of 2021 is doing more harm than good, at least for founder mindset.

I have to say I wish that things were a little bit more transparent. I wish that things were more consistent for processes for entrepreneurs. The process for raising capital as a founder is incredibly opaque, and it probably shouldn’t be. The amount of times that I’ve had to advise and coach founders how to have certain conversations when they’re out raising, what certain signals mean from investors, how to position the company, and they’re blown away by what my advice is is an indication to me that companies aren’t being evaluated and founders aren’t being evaluated in the most transparent, systematic way.

If I could change anything, I wish that that dog and pony show, as I said before, wasn’t as much of a dog and pony show. It’s really hard to change an industry that is still in the grand scheme of things quite niche and has ten to fifteen year feedback loops before someone realizes that things need to be different.

Probably in the midst of investing out of fund three, a very iterative step up from from fund two, maybe on, like, the 40 to 50 range. Still solo GP, still with a 27 to 30 company portfolio, still investing in the same themes, iterative step up in check size, continuing to be consistent with how I operate. As long as I can do that five years from now, I know I’m gonna be successful.

This has been a ton of fun.