I think you want to invest in people that can materialize labor, capital, and customers.
The way that I do it, just to be pithy about it, is 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 were buying out of the money call options and we hope they expire in the money.
We don't necessarily think you could take it as a given that a small fund will outperform a large fund.
$15 billion.
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 17 billion 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?
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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 want to start.
15 billion dollars 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 people like Apple and Oracle and all of 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 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 million market cap or something.
Like that was the norm.
There was no Series I, Series K, Series W anymore.
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 and you get five of those a year, 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 20 years, I think they were all banks.
If you rewind 10 years before that, they were all oil companies.
If you rewind 10 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 can keep investing venture capital dollars later.
I think that's one of the main.
If you look at the money that we just raised, know almost seven billion 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 million dollars 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 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 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 5x 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 invest $50 million 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 million.
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 55x fund on.
I think it was like an 85 million fund, but 55x like that's insane.
But, you know, at some point you can ask Mickey this too.
It's like, you're better off with like a 5x on like a very, very large fund.
Like the harder thing to do is to just return gross dollars, period.
Like that's what LPs actually want.
It's amazing to get a hundred.
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 competitor.
I don't want to 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 small little experiment.
That was 120X.
I got 120 times the capital that I get.
DPI.
How big was the fund?
I think it was $8 million.
But this is the thing.
It's like, that's incredible.
Your point is very valid.
Can you get 120x on a $2 billion fund?
Probably not.
I'm willing to bet you that you can't get 120x on 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.
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, they are focused on a specialty.
And they can be small.
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 best.
You have to sell.
This is a sales 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 kind of 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 going to lose.
That's why the death of the middle is what tends to happen for a lot of these asset classes.
And then LPs, they want to chase returns.
It's also sometimes hard to reach LPs.
So the big generalists kind of gobble them up, or the small specialists that generate very, very good returns will gobble them up as well.
I have so many things to say.
The first thing I do just want to say is Mickey Malka, you mentioned.
Mickey, when I was 18, helped me and agreed to be a mentor of mine 12 years ago, when it was completely not 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.
And I love that.
You mentioned that about kind of the scale of dollars.
And actually, wouldn't you rather do 5x on 250 than, I don't know, 15x 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, I bet I think it's obviously you can't disprove 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 I'm like the kind of the small specialist or a 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.
Sequoia doesn't want to do it.
We don't want to do it.
You don't want to 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 ended up winning that deal or being sold that deal.
I should say.
And then it ends up with a great return.
But But a lot of the best deals will go to the best firms.
That's what's very different about venture capital than private equity.
If you and I are trying to take a public company, private KKR and I'm Blackstone, we're both trying to take over RJR and Abisko or something like that.
They're just going to 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.
Everybody wanted to invest in Uber.
Everybody wanted to invest in Facebook.
It was self-evident that these were very, very interesting companies.
Maybe when the price gets high enough, there come some doubts in people's minds like ooh, I don't know if I want to invest at 87 million pre for the Series A of Facebook, but everybody wanted to do it at 20 million 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 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 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 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 that's the thing that I think it's hard to know.
I mean, it's like, again, 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 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 200x right now.
You said about consensus deals and I immediately thought of actually an Andreessen deal which is like 11 Labs, which was the most non-consensus deal ever at Seed.
Whereas you're competing with OpenAI, you're in London, it's a pre-Seed.
It was very non-consensus.
When you look back at your best deals, have they been consensus or non-consensus?
Well, I think, but if you look at Eleven, the entrepreneur was pretty consensus.
Like, it's like, all right, Mahdi's super, like that whole team is incredibly talented.
Sure, but the pre-seed and the seed, a lot of people turned down.
Yeah, but 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 going to be told what to do.
They just take matters into their own hands.
And this is a very rare trait, right?
Like, you obviously had this trait when you could have just done 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 going to go like email every famous VC to death and get them to talk to me.
And like, you know, it's premeditated. 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 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 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 actually don't agree that 11 was a non-consensus deal.
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 half a million dollars in revenue and it's shrinking every month.
Yeah, of course, it's not going to be consensus.
But That was going to be my question, which is at what stage does that no longer hold true?
The Series A partner who leads our Series A fund is like, oh, the seed guys have it easy.
Amazing founder.
Great.
Let's roll the dice.
For us, it's not quite enough.
There comes that series.
Is it the series?
I agree.
At some point, reality converges with reality.
My kids and I have been watching Silicon Valley the show and there's that famous scene where it's like the Mark Cuban 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 why it is that a Series A that has a million dollars in revenue and is losing 10 million a year is worth 100 million.
Of course it isn't worth $100 million.
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.
Eventually, that value converges on the equity value.
It's like, oh, what's the discounted cash flow, blah, blah, blah, blah, blah.
Once it gets closer there, and it's not a binary thing.
At the seed, it's like, okay, out of the money call option, this guy or gal is very, very smart.
I want to buy 20 of whatever they're doing and hopefully it expires in the money and they're the smartest person I've ever met.
We did these deals 100 times a day. we will do them 100% of the time.
Consensus, non-consensus, there isn't really anything to be consensus or non-consensus on.
It's just like, this is a very, very smart person.
It only becomes non-consensus, 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.
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.
That's the materializing labor.
You also want to make sure this goes into the consensus, non-consensus part.
Is this person really good at fundraising?
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 thing around raising money.
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 SaaS nerd.
Oh, I know.
I love vertical SaaS.
But imagine that you're Chris at Toast.
You start this company.
You go to a restaurant and say, hey, I want you to use 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.
Zero.
That's impossible.
How can you pull that off?
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 running my company TrialPay, I met with, I think, Patrick Callison.
I know a lot about payments.
I've been doing like payment stuff since 1997 on the internet, which is kind of early stages for internet online acceptance of credit cards.
Meet Patrick.
And obviously, I passed on doing the seed round of Stripe because I'm a genius.
It was called Dev Payments at the time.
I was not in the Drewson Horowitz, so don't hold it against me.
It didn't hurt our DPI.
And luckily, the firm invested in them.
But two things.
I asked Patrick, where are your customers going to 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 he knew everything about the history of the payment systems.
I think he actually went out to go meet D. Hawk, the founder of Visa.
John Collison gave me a book on one of those Springer yellow academic textbooks on the origins of the payment system.
They had studied history so much.
Same thing for Vlad at Robinhood, studied history so much.
Same thing for a pervert at Instacart, went out to go meet the founders of Webvan.
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 was TrialPay?
Or, oh, I'd never heard of this.
And it's like, come on, man.
You're going to spend 10 years of your life building this thing.
And you really should study history.
Brian Chesky at Airbnb studied everything about bed and breakfast and hotel industry in the 1800s.
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.
And the reason why this is so important, if you know the book, it's by Alexandre Dumas.
Edmond Dantes is wronged.
He's sent to prison for bogus reasons, for supposedly being a Napoleon supporter for like 17, 18 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 fun size, if somebody offers you 100 million 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 had some childhood chip on their shoulder or, you know, they were wrong at their last company.
You know, like Dave Duffield has this hostile takeover of PeopleSoft.
Of course, he starts work day and he's like, fuck you, Larry Ellison.
Like there's always that kind of energy.
So the Catamana Cristo thing works.
I don't know how to describe it, but the motivation has to be beyond.
I want to make 50 million because if that's the motivation, it's not going to work for our fund size.
I love seeing that fire.
And again, a lot of the most successful companies that I've seen, they always have that.
Renault Laplanche starts Lending Club, fired from his own company.
He's made tons of money. doesn't give a shit.
He starts a competitor called Upgrade.
No accident that the company is called Upgrade.
It's like an upgrade over you MFers, right?
It starts Upgrade.
Upgrade has a multiple of the market cap.
It's probably worth 10 times more than LendingClub now.
So that's a very, very classic commonality.
I want to 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.
But I know quite a bit about lending, where it's quite easy for me today to see a lending business and go fucking horrible.
It's a hard market.
I don't want to be there.
Look at Lending Club.
Look at the market cap.
They're 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... So I do a couple of things.
Number one, if it's like an ad tech company, I know a lot about ad tech.
I 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 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, which is the best?
Companies have hostages, not customers.
It's like, you'll appreciate this if you're an enterprise SaaS guy.
It's like the best companies have hostages, not customers.
So if there's a company that has something marginally better than Workday, right?
Workday has hostages.
They don't have customers.
They're not going to go be able to sell GE and say, oh, wow, I love you to YC kids.
I'm totally switching my HRIS from shitty Workday to amazing AI, whatever, YC, Silicon Valley, HRIS.
Never going to 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, well, I could use Workday, but I'm not a hostage.
So I'm free.
I'm going to pick this other thing.
I was the first investor in Mercury, the SMB bank.
And until SVB failed, 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, 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 going to work because the rate of new hospital creation is too slow, right.
It's like you can't just sell to the new companies.
But you can do that for payment processing, right?
You can do that for ERP.
You can do it for a bunch of other categories, right?
So you will look for greenfield bingo markets where the rate of net new companies being created will supplant the 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?
It's like, they'll hopefully die because they're using shitty software.
The fact that they won't switch is actually indicative of their mantra on everything.
They want to use old technology or they're hostage to old technology.
Let's just sell into the future.
And betting on the future is more fun.
I mean, 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 tweets 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.
And then you end up losing your talent because it's boring.
You can't actually do anything.
So 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 startups that sell big software products to big companies.
You can do that.
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 remind you why you love what you do so much.
You know what I mean when you meet that special founder.
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 open AIs, 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 a really good question.
I mean this is where behind every technology revolution and kind of go back to like Silicon, then the personal computer, then the internet, then kind of internet 20 where you could write to the internet things like Facebook and 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 Akamai.
The infrastructure player for everything AI are all of these backend model, you know, providers.
And then there's the application layer on top.
So if I do something, you know, 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, I 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 9000 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, 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 ChatGPT, 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 15 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, like you know, infinite computing in the cloud, or near infinite computing with like, 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 wanna 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 mean this is, I think, the thing that we talked about last time I was on your show.
It's like 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 at Ask Leo.
It's 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 going to attract that much competition.
And even once you do, it's kind of hard to switch.
So I don't know 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 want to pick on anyone, but fuck it I will – say, a company like Snyk 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 shorter?
Yeah, I think this is a big challenge.
I mean, if you look at all 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 gotten into venture capital, you have this problem of.
I mean, I will say on the record I hate massive secondaries because it kind of turns you from the Catamana Cristo to like the, you know whatever.
The opposite of that would be like the I'm now going to go vacation in the Cote d'Azur, or something like that.
That's going to now say 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 kind of want everybody to be in the same boat.
The reason why I mentioned that is like you have some companies where it's like, you know, founders taking a $50, $100 million secondary.
That's fine if they just turned down a 10 billion acquisition from Google and they're the Count of Monte Cristo and they want to go for it.
Like, okay, that can make sense to me.
And 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 fund in 2021 that did like a massive secondary into one of my companies.
And I was really against it, which made me super popular with the founder, you can imagine.
They were like, oh, well, we own 4% of the company.
We want to 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 going to kind of make like the upside would be like they're going to swing for the fences and go for it.
Because otherwise I would be happy selling for a billion dollars.
Now it's like, fucking, I'm going to go for a hundred billion.
Okay, 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 want to have that set up.
I don't think that's actually the problem.
I mean, this was the greatest respect.
I think we assume the next strategic steps will be the same with that money versus without that money.
And I think what we've both seen is the foie gras 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 framing, right?
It's moral hazard on both primary and secondary, to your point.
Necessity is the mother of invention.
So if you have 100 billion in the bank when you really should only have 10 million in the bank, you're like ah, I'll do 50 things.
I'll have multiple layers of people that I don't need.
And it's interesting.
I find that a lot of people...
When I think about 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.
A lot of people just believe this.
It's like, okay, the IRS, the Internal Revenue Service, there's a lot of tax fraud.
We need to hire more people.
And if we have more people, we're going to do a better job of catching tax fraud.
Or like oh, the military.
We should have more people in the military, because that way we're going to do a better job.
Whereas actually, as you know, it's like sometimes there's addition by subtraction.
If I have a smaller team, there's less communication necessary.
You're going to come up with more creative ways of actually solving the problem.
You're going to solve it with technology.
Whereas if you just say I'm going to solve it on the input layer, I'm going to like address my constituents by saying I'm going to just allocate more money to this thing.
You're going to 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 going to, I'm going to allocate less money and give you the worst people 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 80000 people, but have those two people be the Noam Shazir and the Some other like super genius.
Because if Jeff Dean and Noam Chazir 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 4 to 5x the seed price.
And we're paying 150 to 200x ARR with little signs of product market fit.
Do you agree with me?
It's the worst place to be investing.
Well, I think the problem is that there's the nomenclature, which kind of varies company to company.
So when I started TrialPay, our Series A was $3.1 million on $9.5 million pre.
And that was expensive.
I remember arguing with the partner at Battery.
It's like, this is the most expensive deal we've done.
This was 2006.
At SiteAdvisor, I think we raised 2.7 on 2.7 pre, so even lower.
Hence, he was right.
So now you have a pre-seed, a seed, a seed extension, a seed extension to like what is a series A right.
There's not like this.
Like normally, a series A would be like the first institutional round of money.
Now there's so much variance because like oh, there's the Series A where it's like five superstars out of open AI and they need tons of money for compute.
No moral hazard on that.
You're not going to go spend money on people.
You're going to spend money on GPUs.
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 million 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, I think the nomenclature has shifted.
But 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 metrics of the company.
And that was the Series B.
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 of the Series, As that I personally did in the last year, most of them have been like holy shit, revenue is really scaling.
And these numbers are insane.
And those were Series As, and I get very excited about those.
But I think your mileage varies because the nomenclature is all over the place, the place.
Do you worry about the quick succession rounds?
When you look at companies like a real it 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 60 days after the Series A. And that's unfortunate.
I would have rather done the Series A or rather done the seat, of course.
But if you find the winner, it's also very expensive not to do that deal.
So that's so interesting that I'm so pleased because I'm so sorry dude, I totally forgot that you did the Rillet B, But like you got to 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 well, but this is where i think the motivation, the founder, is very, very important.
So going back to like i mean nick uh, who's the ceo of real i mean i think he does have a bit of the count amount of chris joe and him like, and it's like he doesn't want to go take this money and go spend it on extravagant things um, I think you have to make sure that there's 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?
99 times out of 100, the answer is going to be bad news.
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 tweeted about some of these things during my painful existence at trial day, 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 and there were all sorts of tough times therein.
But you run into these 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's a funny expression by Yogi Berra, this famous baseball player in the US when you come to a fork in the road, take it.
It's like, really?
What does that mean?
He said all these 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 just choosing something.
And both of them are bad.
This option is very bad.
So therefore, I don't want to 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 kind of continue this.
I'm not going to make any choices.
I'm just going to sit here and just like, all right, well, I have more money.
My ARR is more driven from the interest on my giant $100 million cash reserve.
Sorry for rambling on this, but this kind of goes to 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 going to 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 in that now I'm on the cap table.
I own part of this amazing company.
And it's not going to fuck up the company.
The moral hazard is the number one thing.
It's like now it's going to fuck up the company, either with too much primary, or it's like oh, I know.
I won't mess with the primary.
I'll just buy secondary.
It's like that also has existential risk.
As I mentioned, for a certain class of person.
There are other CEOs that like, you know, one of my CEOs did a very, very big secondary in 2021.
Like he and the company has 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 super candid.
And this is where 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 like 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 18 months time, I looked at their revenue projections and in 18 months time, when they need to go, raise their revenues would have been so much that I could still see a 3x 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 think it's the same math, but it's dangerous on both sides, right?
It's like I always have this speech that works maybe one time out of 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 prize, 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 Google that wanted to buy me, but it was 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 go tell this story.
I can introduce the founder to 10 other founders that have lived the exact same thing.
It's like, I 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.
If they thought that the company was going to fail, if they thought they had a 0 chance of raising a Series B, they wouldn't start the fucking company.
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.
There was a deal that I guess we should have done candidly because this company just raised it like a billion dollar plus valuation, but we turned it down.
Company had like less than a million dollars in revenue and they wanted like a 200 million.
Whatever post money series.
It was just so crazy.
I was like, look, you guys haven't started the company before.
I have.
Not to like pull the old bald guy card, but like your series B like.
Even if you have 20 million in revenue, you're fucked.
Like you have to be able to walk into a room.
The number one question you're going to get is what was your last round price?
And people should be wanting to compete to pay three times that price.
Like they will have like, oh my God, what will it take to do this deal?
And if you say like hey, my series A was raised at a billion and I have a million dollars in revenue, you have ended the conversation.
Nobody wants, the psychology of that round is all wrong.
So I give this speech and it just doesn't work, unfortunately.
But I think the smart entrepreneurs, they kind of 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 100 million in the bank.
They're going to 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 Salesforce come in and say what would it take to buy the company?
What was your last round price?
Because I will tell you 100 of the time in every MA conversation, in every fundraising conversation.
The number one question, the first question, is what was your last round price?
And if it's insane, they're like, ooh, that's not good.
And then, as an entrepreneur, you're like oh no no no, but I would take a discount because my company sucks.
You You can't say that.
It just destroys the entire conversation.
It's just game over.
Can I ask there's just stage conversation, otherwise I'm going to lose the thread here of what I want to ask you.
We mentioned kind of the Rillet element and 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 Rillet 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 kind of 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, all right, we want to do the deal.
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, we could win every deal.
It's actually, I think, one of the competing elements that has shown up.
I'm interested to watch how Standard Capital does.
This is kind of the YC offshoot, where I'm going to take 10%.
That's very, very bad for big funds.
Because 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 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 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, which 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?
Sure.
If you only get 50% or 20%, how do you know to test this hypothesis?
And if you win 100% of the deals, that's a very, very good sign.
You should try to win 100% of the deals that you want to do.
But if you're winning them with very low ownership, you're probably not testing this kind of efficient frontier of how far you can go.
And you want to have more ownership.
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.
This is the answer to your question.
It's like all right, I wanted 20 in an A round for a company that doesn't have that much traction, because I'm at Andreessen Horowitz and I've got this big fund and everything else.
And then it's like, no, no, they're going to do a 15% round or whatever.
It's like, oh, fuck that.
I don't want to do that deal.
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 going to 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 want to like say I'm right, I'm saying I'm right.
If you're an investor, you're just going to lose money all the time.
The most valuable insight that you can have as an investor is the self-reflection to say I'm an idiot.
And 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 going to sell everything versus, no, I want to prove to the world that I'm right.
Well, I'm going to 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 runners, in which case I get that thinking.
But when you can, why are we not having a higher win rate and doing 10%?
Well, I 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 like that fund is as successful as possible.
And you know 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.
And we end up with 5% checks in every series.
Yeah.
Like, you know, that's not going to work, right?
We can win every deal that way.
What is the front?
How far on this curve can you go?
And again it's the exact inverse conversation that an entrepreneur is having where it's like I want a tier one investor.
I want an amazing specialist.
I want whatever I want on this person 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, that's not going to work.
And that's the tension between the two.
So 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%?
Well, why not just do it at 9%?
Why not do it at 8%?
Like where do you draw the line on that?
I would do the 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, OK, 10% entry, 5% on exit, assuming a 50% dilution.
Do we think this can reasonably be a $15 billion company?
If so, that is a number that returns the fund with comfort.
I know, but the problem is it's kind of garbage in, garbage out.
It's like you can 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, just 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.
If you really kind of draw a line of like, you have to bifurcate the market.
It's like Facebook, if you look at that round, I think Greylock put $25 million into Facebook.
Actually, I think the round was maybe $25 million at $500.
I think that was the B round for Facebook, 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 I don't see that many things that look like that.
But 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 I have to have high ownership in order to take to correspond with that level of risk.
Those are the two types of deals to do.
The danger is you could say, oh well, this has a million dollars of ARR and they're ahead of the number two player that has 900K of ARR.
Therefore, it's absolutely working.
No, you have to have a high bar on the absolutely working.
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 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 1 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 are left behind?
If you want to know the three investment theses that I have for our fund.
I mean, this is exactly what I told LPs and we'll answer your question in a second.
I think we have three.
We have one, which is we invest in system.
I call it greenfield bingo.
These are existing software companies, but selling to new companies as opposed to selling to the hostages that will never leave.
They tend to be systems of record.
Or a vertical operating system.
So the reason why Rillet, I love that company so much, that's never going to grow zero to 100 in a month.
But it is very, very sticky revenue.
Once you're on, NetSuite has hostages, not customers, they're not going to leave.
If Rillet can sell into every new company, they're going to do great.
The revenue growth will be slower, but it will be so sticky.
And they have infinite option value on adding like hey, do you want to have a collections AI agent that runs on top of overdue invoices?
Blah blah, blah.
And that's like optionality on top of your sticky system of records.
So number one is Greenfield kind of systems of record.
Number two, and this goes to the fastest growing companies in the world.
That you're talking about is like software that does the job of labor.
Like these are new.
This is, I'll give you an example.
Like 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?
There isn't one.
There's so many categories.
What's the dominant software for manicures?
You can pick all these areas where there's no Greenfield.
There's just nothing.
But because the thing that you're selling is 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 1000.
Right?
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 going to do that.
These are the things that scale like crazy, because instead of hiring somebody for 80000 a year that I cannot hire, I can now hire this software product for 20000 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 like outbound phone calls with an AI agent.
It's a thin wrapper on.
You know, open AI 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 is like how are you going to make this sticky?
How are you going to, 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 kind of outbound loan servicing for autos.
And this is a conversation I have with Ari.
It's like what if Talient shows up, the make-believe competitor of Salient?
How do you keep your customers?
And they say, hey, we're going to do it for 50% cheaper.
And I loved his answer, which is, this is my wedge.
I recognize that this is not super sticky if we're just making outbound phone calls and combining these different layers of the stock, because we're not the infrastructure layer.
But we are going to back into a software product.
And I love that answer.
And it's true.
That's what they've done.
So that's my answer to your question, is they might not be able to pull it off.
Every company that says they're going to 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 Velex.
And Velex was started by this entrepreneur basically bought up every legal record in Spain physical legal records at the courthouse, put them into like digital form and then started selling them to law firms.
And I think he got this to something like $20-something million of ARR after 25 years.
But then added AI, and it grew something like 5x, something crazy.
Why?
Because OpenAI, let's just say OpenAI is a sentient being.
AGI is here.
OpenAI has done it tomorrow.
GPT 5.5 is here.
If you say, hey, help me draft a response to this Spanish court case, 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 35 plus infinite data of everything around medical science, which is walled garden that OpenEvidence has versus sentient being that has no data whatsoever.
So that's also a very, very powerful way of building something sticky.
So 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 honestly my hope with Ask Leo or has a kind of sticky system of record, like it's just not going anywhere versus other ones,
You might take a flyer.
It's like, wow, this has grown from zero to 100.
They make outbound phone calls and they're like 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, specialised in the European market.
They've got great numbers like five acts from like 500k to two and a half million raising their Series A like you know, eight or 10 on 50-ish memory serving me correct was a bear 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.
I think it might be harder for a certain set of people that are maniacally focused on growth over everything else.
But what really matters is growth and stickiness.
And if you're a triple triple double, double with terrible retention data, that's going to 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.
I would much rather have a slower-growing permanent system of record that will never get ripped out than the fastest-growing thing on the planet that has 9000 competitors that are all built and lovable by 17-year-olds.
I think there's no comparison.
I mean, there are plenty of people that would be attracted to both, would be my answer.
I'm surprised that it was as challenging as you portray it.
We got it done, but I was surprised too by how challenging it was.
Kirsten, you mentioned about selling companies that I spoke to David George before the show.
And he said one thing he's never talked about publicly.
I don't think that he's a phenomenal master on is advice on selling companies.
Ask him about that.
I know it's a bit broad and random, but I do want to 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.
So if you're raising money, you're like, oh, I should raise money.
I have the best metrics ever.
I'm going to talk to five firms and they're going to compete to the death over winning my deal.
Like that was my experience with my series B at trial phase.
So it's like oh, so it's like, 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, in many cases, years getting to know people at the potential acquirer.
It's never the CEO unless you're like Jan Koum at WhatsApp.
Let's just say that you have a company.
You do something amazing.
Somebody at Salesforce should buy it.
You would rather go public, but you're like, ooh, you kind of see the writing on the wall.
I'm going to hit a wall in a year and a half.
What you should start doing then is I kind of call it a background process.
Like if you know what cron is 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's DOA.
You don't want to spend time with the corp dev people because most people are like oh, corp dev buys companies.
No, they don't.
They execute transactions.
Right.
If Salesforce buys your company, you're not working for the head of corp dev.
You're working for this SVP who has some hole on their personnel or needs 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 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 100x year over year growth and they want to buy, but rarely does that intersect a lot of times like, oh shoot, we started going like that, now we want to sell but nobody wants to buy this falling knife.
So it's hard to perfectly choreograph this.
But the main piece of advice spend time with three or four companies, not under the guise because honestly, when I did this 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 PayPal, you should put on your receipt page.
You should put coupons that we do for this post-transactional product that we have.
I was spending so much time because if I got that deal, I didn't 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, I have to go impress the corp dev person wrong.
I have to only interact with the CEO.
You know, sometimes, right?
Like you know, 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, right?
Because of the Justice Department or something.
But like that can, if it's sufficiently strategic.
You know these 5 billion acquisitions that don't happen very often.
But, like, you know, a $500 million to $1 billion acquisition –
That can happen at not the CEO level.
And you just have to spend the time and invest the time and resources.
And by the way, this is the same advice that I give people on fundraising.
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 not as great but hopefully leads to being profitable, and or you sell your company.
So you probably should spend 5 to 10 of your time 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 just invest on the spot.
This is how I raised my Series D at TrialPay.
I had spent so much time with the Greylock guys, as an example.
I pitched them after I'd met Reid 20 times, and it's like...
He knew me.
So he knew that he trusts, 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 parts.
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 we see labor displacement materially shown up in labor markets.
Do you think that's true?
And 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.
And, if anything, it's a huge tailwind because they're going to start being.
They have the distribution, they're going to start adding features.
And 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, you have things like Zendesk.
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.
Their revenue could go down 100%.
These are very, very different.
And then you have things in the middle, like Adobe, where it's like ooh, maybe now.
Whenever I want a logo, I just go to ChatGPT.
I don't go to the graphics team.
So maybe you'll need fewer graphics designers.
Maybe you'll need Zendesk, you'll need fewer customer support people.
That probably is true, right?
Like there are going to 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 100 times more efficient.
I think you'll have some cases where labor like now that you know.
Take the Eve example that I gave you.
Wow, now I can do 100 times as many cases or five times as many cases as I did before.
I'm going to 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 going to start happening.
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 don't disagree with that.
That's why I gave the example of the three types of SaaS.
You're going to have some totally impervious, and I'm talking about SaaS, not people.
If you flip that to people, it's like all right, 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, 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 going to 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 sadly departed, who ran Zappos.
He had this whole thing which I think is actually correct, which is, 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.
There's somebody who had something really bad happen and was on the phone with the customer support person.
I think her husband died something bad that had nothing to do with the shoe order.
Zappos sends 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.
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.
I actually gave a talk to the exec team at J.P.
Morgan about this.
They're like, what part of our business is going to be least touched by AI?
And I said, you know what?
Wealth management.
Because what is wealth management?
It's yeah yeah, it's like hopefully like getting good returns for the dollars that you have with us.
But it's really like that relationship guy or gal and like the woman that was running wealth, she was like she like stood up in the audience like 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 kind of re sometimes there will be an opportunity.
The upskilling is not like hey, everybody should learn how to code.
The upscaling might be like stop doing tedious work, like answering, you know, like looking at knowledge base and then you know, typing that back with lots of typos into like 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 want to do a quick fire round with you.
I'm just going to give you a couple of quick statements.
What have you changed your mind on most in the last 12 months?
I've probably changed my mind.
Well, as I mentioned, you have to be able to change.
It's more of companies where we didn't do the early round, and then it's like I'd rather be rich than right.
That's what we often talk about.
It's like, all right, I want to be right.
So we've probably done a couple of deals where it's like we passed round N minus one.
We ended up doing round N, But I don't think I've changed my mind on that much.
Maybe I would say like 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, like a bunch of firms are now doing this.
I was the first person to talk about this, and 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 most.
What product does Andreessen not have today that you would most like Andreessen to have?
You mentioned GC having the fund there that does that roll-up play.
They've got the 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 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... General Capitalist actually has one of these.
They have a credit fund.
So either for customer acquisition or if you're fintech and doing lending.
So that would be interesting.
But in general, we don't want to be at odds with our entrepreneurs.
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 a venture capital firm, like you can earn a thousand X on a winner.
You don't really want to like kind of beat up the companies that are struggling.
And that's kind of what the credit instrument needs to do.
But 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.
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 catamana Christo and don't second guess anything.
Give them money, be their best partner, and go.
Versus question the market, question the this.
I think it really is.
I've just become 100% convinced this is entirely about people.
100%.
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 be a seed round.
Can you please tell Martin Casado, 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 on no market and product.
And he was like, you're an idiot.
It's not that.
It's all about founder.
I mean, 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 if the founder is really good.
Like, yes, of course it has to converge on reality.
But I think it's like, it is like materialized labor capital customers.
Like that's kind of 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 deals 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 24 billion for the Series C And I was debating a 5 million difference with Zach for the Series B.
I wanted to do it at 130.
He wanted $135.
And I think Goldman was willing to pay 200, but he was willing to work with me because of my fintech.
And it's like, no, no, $5 million.
That was just so stupid, right?
And luckily, I was willing to admit that I was stupid and did the next round.
But you can see the difference.
This is why it's so important 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 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 million.
Right.
So, of course, this 130 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.
Final one for you, dude.
What does venture look like in five years' time?
When we look at the 15 billion that you raised today, it is obscene to even think 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 Mark's essay around software eats the world.
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.
I 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 laborer.
You're going to have all of these areas where it's like there is going to be, like you know, vertical SaaS proved this or kind of V1.
It's like, oh, how is Toast worth $20 billion?
You're going to 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 100x.
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 going to go up into the right.
Dude, I told you this is like venture.
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.
It really is rare to have one like this.
All right.
And hopefully I'll see you in London soon.
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