1
00:00:00,000 --> 00:00:04,559
I've talked to founders who feel this same
frustration, which is, hey.
2
00:00:04,559 --> 00:00:07,359
I signed up for the venture capital rocket
ship.
3
00:00:07,359 --> 00:00:10,559
Now that I know more about my business, it
isn't one of those.
4
00:00:10,559 --> 00:00:11,839
How do I get off?
5
00:00:11,839 --> 00:00:13,759
It's the week of May 5.
6
00:00:13,759 --> 00:00:17,265
Welcome to the Learning Corner, a Ventures
podcast.
7
00:00:21,824 --> 00:00:24,144
Welcome to The Learning Corner by Precursor.
8
00:00:24,144 --> 00:00:29,664
I'm Mia Farnam, and I am joined by our GP and
managing partner, Charles Hudson, where we will
9
00:00:29,664 --> 00:00:34,280
be talking through the articles and Goodreads
that caught our team's attention over the past
10
00:00:34,280 --> 00:00:34,759
week.
11
00:00:34,759 --> 00:00:40,119
This week, we're also lucky enough to have one
of our awesome graduate school interns, Leon,
12
00:00:40,119 --> 00:00:42,439
join us in our virtual studio.
13
00:00:42,520 --> 00:00:43,640
Welcome, Leon.
14
00:00:43,640 --> 00:00:45,399
I always learn so much from our discussions.
15
00:00:45,399 --> 00:00:46,679
Thank you for letting me join this week.
16
00:00:46,695 --> 00:00:47,734
Excited to jump in.
17
00:00:47,734 --> 00:00:48,054
Cool.
18
00:00:48,054 --> 00:00:53,335
So our first topic is a blog post from Edited
Capital titled, we need a VC prenup creating
19
00:00:53,335 --> 00:00:55,015
off ramps for tech businesses.
20
00:00:55,015 --> 00:00:56,854
It addresses a growing tension in venture.
21
00:00:56,854 --> 00:01:00,695
What happens when a startup no longer fits the
traditional scale or die model, but still has a
22
00:01:00,695 --> 00:01:01,174
viable business?
23
00:01:01,420 --> 00:01:06,619
The Post proposes that instead of forcing a
binary outcome, either raise more capital or
24
00:01:06,619 --> 00:01:09,420
shut down, we should develop better off ramps
for founders.
25
00:01:09,420 --> 00:01:13,739
Written from the POV of a PE firm, this
obviously could include private equity
26
00:01:13,739 --> 00:01:17,915
acquisitions or growth buyouts that allow a
company to keep operating even if it doesn't
27
00:01:17,915 --> 00:01:19,354
have venture scale upside.
28
00:01:19,354 --> 00:01:23,834
It's a really compelling argument in a time
when we're seeing venture evolve with new
29
00:01:23,834 --> 00:01:27,435
instruments, secondaries, liquidity tools,
giving founders more optionality.
30
00:01:27,435 --> 00:01:31,780
But historically, private equity and early
stage VC live in separate universes.
31
00:01:31,780 --> 00:01:35,540
We're starting to see a little bit of a
blurring of lines between late stage growth,
32
00:01:35,540 --> 00:01:37,939
crossover capital, and then earlier PE moves.
33
00:01:37,939 --> 00:01:39,780
Perhaps this becomes more of a natural step.
34
00:01:39,780 --> 00:01:43,755
You know, we've talked about this and how the
eventually goes to some seems to be growing up.
35
00:01:43,755 --> 00:01:49,115
We're seeing more continuity between early
stage VC and PE firms rather than the more
36
00:01:49,115 --> 00:01:51,674
traditional graduations to late stage venture.
37
00:01:51,674 --> 00:01:52,635
Do you think that's a good thing?
38
00:01:52,635 --> 00:01:57,040
What kinds of relationships should early stage
funds be building with downstream capital
39
00:01:57,040 --> 00:01:57,920
partners today?
40
00:01:57,920 --> 00:02:00,400
I mean, I read through the article, and I was
like, yes.
41
00:02:00,400 --> 00:02:04,959
We already have many companies that, with the
best intentions, will fall off the venture
42
00:02:04,959 --> 00:02:05,840
rocket ship.
43
00:02:05,840 --> 00:02:11,074
And, you know, I've talked to founders who feel
this same frustration, which is like, hey.
44
00:02:11,074 --> 00:02:13,794
I signed up for the venture capital rocket
ship.
45
00:02:13,794 --> 00:02:17,075
Now that I know more about my business, it
isn't one of those.
46
00:02:17,155 --> 00:02:18,194
How do I get off?
47
00:02:18,194 --> 00:02:20,194
And I think the author is right.
48
00:02:20,194 --> 00:02:21,555
We don't have a good off ramp.
49
00:02:21,555 --> 00:02:25,469
And I think some of this is just the structural
differences in what makes a good venture
50
00:02:25,469 --> 00:02:28,110
capital investment and what makes a good PE
investment.
51
00:02:28,110 --> 00:02:31,230
And, you know, we have companies in our
portfolio that are trying to navigate this.
52
00:02:31,230 --> 00:02:35,710
They're growing, but they're not growing fast
enough to maybe unlock the next round.
53
00:02:35,710 --> 00:02:39,675
But they're not companies that in under any
circumstances should be shut down.
54
00:02:39,675 --> 00:02:45,514
And the difficulty is actually in how do you
take a company where most of the product and
55
00:02:45,514 --> 00:02:50,155
operating decisions that were made for the
first couple of years were all oriented toward
56
00:02:50,155 --> 00:02:50,474
growth.
57
00:02:50,490 --> 00:02:55,290
The hiring plan, the product development plan,
the business model, the pry were all oriented
58
00:02:55,290 --> 00:02:55,930
towards growth.
59
00:02:55,930 --> 00:03:00,569
And then you have to sort of, like, in midair,
change gears and say, all the things we were
60
00:03:00,569 --> 00:03:03,450
focused on, growth, and, you know, now we're to
our profitability.
61
00:03:03,450 --> 00:03:05,155
We're gonna flip our whole mindset.
62
00:03:05,155 --> 00:03:09,794
If you wanna get on that PE path because that's
a path that does prioritize financial
63
00:03:09,794 --> 00:03:12,594
performance, profitability, operational
excellence.
64
00:03:12,594 --> 00:03:15,474
And you also think that the other thing that's
missing here is for that to even be on the
65
00:03:15,474 --> 00:03:17,395
table, you have to hit some minimum scale.
66
00:03:17,395 --> 00:03:18,435
Maybe it's $10,000,000.
67
00:03:18,560 --> 00:03:19,759
Maybe it's $5,000,000.
68
00:03:19,759 --> 00:03:20,400
Maybe it's 20.
69
00:03:20,400 --> 00:03:22,159
There's some minimum scale.
70
00:03:22,159 --> 00:03:26,400
So I would argue that we have a good off ramp
right now for companies that are not on the
71
00:03:26,400 --> 00:03:28,239
venture trajectory but are subscale.
72
00:03:28,239 --> 00:03:30,080
Those companies should shut down or sell.
73
00:03:30,080 --> 00:03:34,534
So if you can't get to a couple million in ARR
and you've raised VC, the most likely outcome
74
00:03:34,534 --> 00:03:36,375
for your business is shut down or sale.
75
00:03:36,375 --> 00:03:39,735
And I think as you get to the ten or fifteen
million dollar revenue market, it gets more
76
00:03:39,735 --> 00:03:43,094
interesting because then you could build a
business that's more profitable.
77
00:03:43,094 --> 00:03:45,735
That could be a tuck in acquisition that could
be interesting to PE.
78
00:03:45,735 --> 00:03:49,550
But oftentimes, I find the people who are
interested in signing up for fast growth are
79
00:03:49,550 --> 00:03:54,430
not necessarily the people who are interested
in or best suited to run the more profitable,
80
00:03:54,590 --> 00:03:56,590
slower growing version of the same company.
81
00:03:56,590 --> 00:04:00,430
Elaborating on that last part that you
mentioned, at the earliest stages when we come
82
00:04:00,430 --> 00:04:05,574
in, have there been signals that you've seen
that you can almost tell years before that
83
00:04:05,574 --> 00:04:10,455
perhaps divergence in the road occurs that this
could be potentially a great route for a
84
00:04:10,455 --> 00:04:14,614
private equity kind of path or buyout versus
this is a company that's either going to shoot
85
00:04:14,614 --> 00:04:17,269
off and grow rocket ship wise or will be shut
down.
86
00:04:17,269 --> 00:04:21,029
Because I think we're gonna be starting to
straddle the middle road a lot, so it'll be
87
00:04:21,029 --> 00:04:23,350
figuring out how to discern between the two
paths quickly.
88
00:04:23,350 --> 00:04:27,110
I mean, historically, the answer has been, if
you're a venture capitalist, you should try to
89
00:04:27,110 --> 00:04:31,110
screen out those companies that you think are
gonna get on this path, and you should avoid
90
00:04:31,110 --> 00:04:31,430
them.
91
00:04:31,430 --> 00:04:31,669
Yeah.
92
00:04:31,774 --> 00:04:36,735
And when I read a lot of the things about seed
strapping that people are writing, I don't know
93
00:04:36,735 --> 00:04:40,014
how much of that is aspirational versus it's
actually actionable.
94
00:04:40,014 --> 00:04:42,495
There are more people I've talked to, and I
I've come around this.
95
00:04:42,495 --> 00:04:44,415
We're gonna have two kinds of venture backed
companies.
96
00:04:44,415 --> 00:04:48,519
We're gonna have companies that raise
$10,000,000 or less and figure out how to get
97
00:04:48,519 --> 00:04:51,639
on their own self sustaining, ideally, high
growth path.
98
00:04:51,639 --> 00:04:54,920
And then we're gonna have companies that raise
as much money as humanly possible, and I don't
99
00:04:54,920 --> 00:04:56,759
think we're gonna have that much in between.
100
00:04:56,759 --> 00:05:00,279
And the question for the companies in the
middle is gonna be, can you still get
101
00:05:00,279 --> 00:05:02,854
attractive outcomes if you raise a little bit
of money?
102
00:05:02,854 --> 00:05:07,014
I think about companies like Buffer and others
that have been fairly judicious in the amount
103
00:05:07,014 --> 00:05:09,894
of money they've raised and are still, even in
our own portfolio, healthy.
104
00:05:09,894 --> 00:05:14,055
Like, there are companies I think there is not
an inherent tension between being capital
105
00:05:14,055 --> 00:05:14,935
efficient and growing.
106
00:05:14,935 --> 00:05:15,414
It's funny.
107
00:05:15,414 --> 00:05:19,270
Back in the stone ages of venture, companies
got profitable, like, fairly early in their
108
00:05:19,270 --> 00:05:19,750
life.
109
00:05:19,750 --> 00:05:23,350
It was an important step to make sure that the
business actually worked because you were gonna
110
00:05:23,350 --> 00:05:26,870
take that company public someday, and we've
we're pretty far away from that.
111
00:05:26,870 --> 00:05:27,910
When did that change?
112
00:05:27,910 --> 00:05:29,830
Can you harken back to those days and about
113
00:05:30,154 --> 00:05:30,634
what happened?
114
00:05:30,634 --> 00:05:31,274
Thousands.
115
00:05:31,274 --> 00:05:33,435
It's like everyone's like, well, growth is more
important.
116
00:05:33,435 --> 00:05:34,954
We'll solve profitability later.
117
00:05:34,954 --> 00:05:37,595
We never sort of came back to that in the
venture business.
118
00:05:37,595 --> 00:05:39,514
There was so much more money that's coming to
the business.
119
00:05:39,514 --> 00:05:43,675
There are people who will finance longer
stretches of upside down financial performance
120
00:05:43,675 --> 00:05:44,555
than before.
121
00:05:44,555 --> 00:05:48,529
It used to be you had to fix this stuff because
the next person in the chain demanded it, and
122
00:05:48,529 --> 00:05:52,449
now you can go pretty far in your life as a
private company without solving for
123
00:05:52,449 --> 00:05:53,009
profitability.
124
00:05:53,009 --> 00:05:58,210
My last question for this one is what role
should we as early stage investors play in
125
00:05:58,210 --> 00:06:00,365
helping our founders navigate this decision?
126
00:06:00,365 --> 00:06:05,725
Is there a clear duty of care to helping them
explore off ramps, or are we still too anchored
127
00:06:05,725 --> 00:06:07,084
to the power law model?
128
00:06:07,084 --> 00:06:10,285
And is this just something that's happening now
more than ever, just given all of the
129
00:06:10,285 --> 00:06:12,925
conversation around liquidity and need from
LPs, etcetera?
130
00:06:12,925 --> 00:06:16,339
I don't think most VCs want to be in this
business.
131
00:06:16,339 --> 00:06:20,180
When say this business, I mean the business of
working with companies that they've invested in
132
00:06:20,180 --> 00:06:23,300
that are subscale, but maybe there's an
alternative path.
133
00:06:23,300 --> 00:06:26,660
I think most VCs I know wanna spend their money
and time on the rocket ship companies.
134
00:06:26,660 --> 00:06:30,500
But I do think there's this duty of care that,
you know, if you made a commitment to a founder
135
00:06:30,500 --> 00:06:33,334
to work with them, it hopefully was a thick and
thin commitment.
136
00:06:33,334 --> 00:06:38,774
And I wonder if firms will start to in the same
way as they added board partners, I wonder if
137
00:06:38,774 --> 00:06:39,894
some firms will just say, hey.
138
00:06:39,894 --> 00:06:40,214
Look.
139
00:06:40,214 --> 00:06:43,654
These companies require a different set of
resources, a different set of guidance.
140
00:06:43,899 --> 00:06:45,979
I wanna spend my time on the high growth stuff.
141
00:06:45,979 --> 00:06:49,740
We're gonna bring in an operating partner whose
job it is to be the board member and shepherd
142
00:06:49,740 --> 00:06:51,339
these companies to the second path.
143
00:06:51,339 --> 00:06:55,500
Because I think right now, the belief is that
second path is a lower scale outcome path.
144
00:06:55,579 --> 00:06:59,964
If you get a few of those things that really
pop, attention follows money, and GC firms will
145
00:06:59,964 --> 00:07:01,485
pay a lot more attention to those companies.
146
00:07:01,485 --> 00:07:04,204
Well, it's a great bridge from my point of view
into our next topic.
147
00:07:04,204 --> 00:07:08,285
Bloomberg reported last week that LightSpeed
Venture Partners has officially become
148
00:07:09,689 --> 00:07:14,649
investment adviser, an IRA, joining other
larger firms like Sequoia, Andres and Horowitz,
149
00:07:14,649 --> 00:07:18,649
and General Catalyst, and evolving beyond the
traditional venture capital model.
150
00:07:18,649 --> 00:07:22,664
This move enables Lightspeed to invest in a
broader range of assets beyond just start up
151
00:07:22,664 --> 00:07:27,464
equity, including secondaries, public stocks,
crypto, and AI led roll ups without being
152
00:07:27,464 --> 00:07:31,865
limited to this 20% cap that typically applies
to non RIA firms.
153
00:07:31,865 --> 00:07:36,904
This shift underscores a larger transformation
in the venture ecosystem as larger firms adopt
154
00:07:36,810 --> 00:07:41,449
PE style strategies and blur the lines between
venture capital, private equity, and asset
155
00:07:41,449 --> 00:07:42,169
management.
156
00:07:42,169 --> 00:07:47,290
This reclassification reflects the growing
consensus that venture capital, especially at
157
00:07:47,290 --> 00:07:52,514
scale, is becoming more diversified in
structure, strategy, and ambition, and that
158
00:07:52,514 --> 00:07:57,714
traditional VC alone may no longer be able to
meet the expectations of LPs or the operational
159
00:07:57,714 --> 00:07:59,235
goals of larger firms.
160
00:07:59,235 --> 00:08:04,035
Charles, from your perspective, are these firms
setting the pace for what the future of venture
161
00:08:04,035 --> 00:08:09,170
looks like, or are they simply outliers playing
a completely different game altogether?
162
00:08:09,250 --> 00:08:14,850
I think that all of the big firms that aren't
RIAs are going to become RIAs for a couple
163
00:08:14,850 --> 00:08:15,410
reasons.
164
00:08:15,410 --> 00:08:18,964
The nice thing about being what's called an
exempt adviser is as long as you're a venture
165
00:08:18,964 --> 00:08:23,285
capital firm or no more than 20% of your
activity is in the areas you mentioned, you
166
00:08:23,285 --> 00:08:27,524
have a much lighter regulatory compliance
burden with the SEC, with other regulators too.
167
00:08:27,524 --> 00:08:31,685
So if you're a small venture firm like
Precursor, it means you don't have to have a
168
00:08:30,750 --> 00:08:35,149
full on compliance team, and we don't have to
have a compliance person editing the learning
169
00:08:35,149 --> 00:08:38,110
quarter to make sure we're not making a forward
looking or marketing.
170
00:08:38,110 --> 00:08:40,830
It's just easier, but it's a limiting factor.
171
00:08:40,830 --> 00:08:45,149
And I think this is, as you highlighted, it's a
function of venture getting bigger.
172
00:08:45,149 --> 00:08:50,404
And, you know, below a certain scale, the trade
off between being exempt but being limited in
173
00:08:50,404 --> 00:08:54,164
the products you can offer is probably a good
trade off for most firms, unless you really
174
00:08:54,164 --> 00:08:55,684
wanna do crypto or secondaries.
175
00:08:55,684 --> 00:08:59,920
And now I think these firms are like, well,
we're not really venture capital per se.
176
00:08:59,920 --> 00:09:04,320
We are broadly diversified asset management
firms that are anchored in venture capital as
177
00:09:04,320 --> 00:09:05,360
our core product.
178
00:09:05,440 --> 00:09:09,519
In the same way that, like, BlackRock is a
multi asset firm, a lot of the PE firms have
179
00:09:09,519 --> 00:09:10,720
private credit arms now.
180
00:09:10,720 --> 00:09:12,800
And I think this opens the door for a couple of
things.
181
00:09:12,800 --> 00:09:16,485
One, you've already seen General Catalyst
essentially start to acquire other venture
182
00:09:16,485 --> 00:09:16,884
firms.
183
00:09:16,884 --> 00:09:21,285
I think you will see registered investment
adviser VC firms acquire other adjacent
184
00:09:21,285 --> 00:09:21,924
businesses.
185
00:09:21,924 --> 00:09:25,524
You know, two of the three firms you mentioned
already have or will have wealth management
186
00:09:25,524 --> 00:09:27,285
practices on their own platforms.
187
00:09:27,285 --> 00:09:30,040
I expect they will look a lot less like venture
capital firms.
188
00:09:30,040 --> 00:09:33,639
I also think if the management I have no reason
to believe this is true.
189
00:09:33,639 --> 00:09:34,600
I have no inside information.
190
00:09:34,600 --> 00:09:39,160
If the management of those firms have any
interest in going public or being acquired by a
191
00:09:39,160 --> 00:09:40,894
larger private equity firm.
192
00:09:40,894 --> 00:09:44,254
All the people who would buy them are
registered, and in order to go public, they
193
00:09:44,254 --> 00:09:45,615
would likely need to be registered.
194
00:09:45,615 --> 00:09:49,295
And the last thing I'll say is it's very clear
to me that the largest firms in our industry
195
00:09:49,295 --> 00:09:51,134
plan to continue to get bigger.
196
00:09:51,134 --> 00:09:55,379
And at some point, the only way to get bigger
is you have to have products other than venture
197
00:09:55,379 --> 00:09:56,820
capital under your umbrella.
198
00:09:56,820 --> 00:10:02,419
So I think this was like the natural evolution
for these firms, given their desire to grow AUM
199
00:10:02,419 --> 00:10:03,700
and, you know, to scale.
200
00:10:03,700 --> 00:10:08,644
How do you think this affects the way early
stage firms, like precursor, are perceived by
201
00:10:08,644 --> 00:10:14,644
founders and LPs to create pressure at the GP
level to expand scope of our offerings, or is
202
00:10:14,644 --> 00:10:17,365
staying focused still a good competitive
strategy?
203
00:10:17,365 --> 00:10:21,720
I think it's actually quite smart of these
firms to register.
204
00:10:21,879 --> 00:10:25,639
Because at some point, you know, we've spent
the last two years being like, what is venture
205
00:10:25,639 --> 00:10:26,120
capital?
206
00:10:26,120 --> 00:10:26,919
Like, what counts?
207
00:10:26,919 --> 00:10:30,279
And I think these firms are like, well,
whatever a venture capital does is venture
208
00:10:30,279 --> 00:10:30,840
capital.
209
00:10:30,919 --> 00:10:32,279
But even that has a ceiling.
210
00:10:32,279 --> 00:10:35,394
So at some point, you're like, we're actually
not a venture firm.
211
00:10:35,394 --> 00:10:38,674
We are a broadly diversified private investment
firm.
212
00:10:38,674 --> 00:10:42,834
And at some point, I'm sure these folks will
dabble in other things like private credit or
213
00:10:42,834 --> 00:10:44,274
maybe even public equities.
214
00:10:44,274 --> 00:10:47,714
But at some point, you're just like, we're so
big that we're not just a venture capital firm,
215
00:10:47,714 --> 00:10:48,754
so that's the wrong label.
216
00:10:48,754 --> 00:10:52,769
I'm very curious to see what these folks decide
to call these new businesses.
217
00:10:52,850 --> 00:10:56,610
Most of the terms have been pejorative, and
most of the pejorative terms have come from
218
00:10:56,610 --> 00:11:01,649
little VC funds, asset gatherers, you know,
investment banks, you know, all all designed to
219
00:11:01,649 --> 00:11:03,169
poke fun at their size and scale.
220
00:11:03,169 --> 00:11:06,985
And given how many smart people there are, I
think somebody at one of those places is gonna
221
00:11:06,985 --> 00:11:12,585
rebrand these mega funds as some new cool
sounding asset in service of raising more
222
00:11:12,585 --> 00:11:12,904
money.
223
00:11:12,904 --> 00:11:16,264
Last question here because we talked about LPs,
GP.
224
00:11:16,264 --> 00:11:20,825
For founders with this sort of move, what
should this mean for them if they're engaging
225
00:11:20,825 --> 00:11:24,490
with different funds who are considering these
new types of ways to diversify?
226
00:11:24,490 --> 00:11:26,409
And also, does it matter from their
perspective?
227
00:11:26,409 --> 00:11:28,169
I don't think it matters today Yeah.
228
00:11:28,250 --> 00:11:31,769
Because even though a lot of these firms are
branching into other things, you know,
229
00:11:31,769 --> 00:11:34,664
secondaries is very much still in the lane of
venture.
230
00:11:34,664 --> 00:11:37,865
Crypto can be, but doesn't have to be in the
lane of venture.
231
00:11:37,865 --> 00:11:42,664
I would argue despite their size, most of these
firms still have venture capital, an early
232
00:11:42,664 --> 00:11:45,544
stage venture capital as an important piece of
what they do.
233
00:11:45,544 --> 00:11:50,339
It's not impossible to imagine a world five to
ten years from now where venture is less than
234
00:11:50,339 --> 00:11:52,899
half of the AUM and activity at these firms.
235
00:11:52,899 --> 00:11:54,500
They've got so many other businesses.
236
00:11:54,500 --> 00:11:58,100
And then you start to ask yourself, as a
founder, do I wanna be at a firm where venture
237
00:11:58,100 --> 00:12:02,434
is the main event, do I wanna be an only event,
or do I wanna be at a firm where venture is a
238
00:12:02,434 --> 00:12:03,075
part of what they do?
239
00:12:03,075 --> 00:12:07,714
Historically, founders have chosen the pure
play over the side hustle VC thing.
240
00:12:07,714 --> 00:12:11,714
I don't know if that will continue to be the
case because if you could still get Marc
241
00:12:11,714 --> 00:12:16,410
Andreessen or Roloff on your board, even though
Sequoia and Andreessen are much bigger firms, I
242
00:12:16,410 --> 00:12:19,610
think most founders would be like, I don't care
how much time he spends on, you know, Sequoia
243
00:12:19,610 --> 00:12:21,129
Heritage or Andreessen Perennials.
244
00:12:21,129 --> 00:12:23,610
As long as he's got time for my board meeting
and he's giving me advice, I'm in.
245
00:12:23,610 --> 00:12:28,535
It makes me think about those funds that are
kind of in the middle, so not small, not mega
246
00:12:28,535 --> 00:12:32,615
yet, where their minds will go after seeing
these mega funds create more diversified
247
00:12:32,615 --> 00:12:34,134
strategies around how they move money.
248
00:12:34,134 --> 00:12:36,054
I'm curious to know where they will lean.
249
00:12:36,054 --> 00:12:40,690
I think a lot of people have deep questions
about if you think about the barbell, I think
250
00:12:40,690 --> 00:12:43,490
most people can tell you a story about what
happens on either end.
251
00:12:43,490 --> 00:12:46,850
I think the middle and most people are like, is
that a sustainable place to live?
252
00:12:46,850 --> 00:12:49,089
What does it mean to be one of those firms?
253
00:12:49,169 --> 00:12:52,449
And I think that's the next unanswered question
in venture.
254
00:12:52,449 --> 00:12:57,184
What happens to the three hundred and fifty to
seven hundred and fifty million dollar series a
255
00:12:57,184 --> 00:12:58,384
focused venture fund?
256
00:12:58,384 --> 00:13:00,464
Like, is that a model that works today?
257
00:13:00,464 --> 00:13:04,784
In our final piece, the information shares
highlights from their recent events on the
258
00:13:04,784 --> 00:13:09,950
state of AI today and where investors examined
whether top AI companies were the next Googles
259
00:13:09,950 --> 00:13:11,149
or Yahoos.
260
00:13:11,149 --> 00:13:15,870
Even as enormous amounts of capital are flowing
into foundational models like OpenAI and
261
00:13:15,870 --> 00:13:19,789
Anthropic, many investors still remain
uncertain about things like monetization,
262
00:13:19,789 --> 00:13:22,830
enterprise adoption, and sustainable
differentiation.
263
00:13:22,830 --> 00:13:27,065
The piece really noted that many AI companies
actually haven't found their AdWords moment
264
00:13:27,065 --> 00:13:27,384
yet.
265
00:13:27,384 --> 00:13:31,705
In other words, many companies are still using
subscriptions as a stopgap as they figure out
266
00:13:31,705 --> 00:13:32,585
monetization.
267
00:13:32,585 --> 00:13:35,144
And the current state of AI revenue is
unpredictable.
268
00:13:35,225 --> 00:13:41,450
Enterprise adoption is cautious and picks and
shovels infrastructure plays like GPU, rental,
269
00:13:41,450 --> 00:13:46,250
data centers carry significant risk, and then
geopolitical and regulatory uncertainty only
270
00:13:46,250 --> 00:13:47,929
continue to add to those challenges.
271
00:13:47,929 --> 00:13:52,075
Across your career, Charles, you've seen
multiple technology cycles, Internet, cloud,
272
00:13:52,075 --> 00:13:52,394
mobile.
273
00:13:52,394 --> 00:13:56,715
You know, investors are overlaying those
learnings from these past cycles as a lens to
274
00:13:56,715 --> 00:13:58,795
make sense of the current AI waves.
275
00:13:58,795 --> 00:14:02,634
But what are some of the themes from previous
cycles that still hold true today?
276
00:14:02,634 --> 00:14:07,139
As you know, Leanne, I have a lot of maybe out
of step views, and I'll tell you as I I've told
277
00:14:07,139 --> 00:14:07,700
the team.
278
00:14:07,700 --> 00:14:12,740
My lesson from February is everybody was pretty
much directionally right about what the
279
00:14:12,740 --> 00:14:15,220
Internet was gonna mean for the economy and
society.
280
00:14:15,220 --> 00:14:17,779
If anything, we underestimated the potential.
281
00:14:17,779 --> 00:14:19,394
People hadn't really thought through.
282
00:14:19,394 --> 00:14:22,514
Really, the consumer commerce opportunities in
Internet were were obvious.
283
00:14:22,514 --> 00:14:25,794
I don't think we really knew how much we would
use the Internet to communicate, and I think no
284
00:14:25,794 --> 00:14:30,195
one I knew had really pieced together what does
the Internet plus mobile mean for just, like,
285
00:14:30,195 --> 00:14:31,970
redefining communication site?
286
00:14:31,970 --> 00:14:35,170
And I say we were directionally right because
we were totally wrong on the timeline.
287
00:14:35,170 --> 00:14:39,490
If you look at the just ironically, amounts of
money that were lit on fire in, we'll call it,
288
00:14:39,490 --> 00:14:44,855
'97 to 02/2001, it felt big because the scale
of the venture business was much smaller then.
289
00:14:44,855 --> 00:14:48,455
We could light that amount of money on Fire
Today and Venture and probably not notice.
290
00:14:48,615 --> 00:14:52,855
So one is the never confuse, basically, being
directionally correct with getting timing
291
00:14:52,855 --> 00:14:53,174
right.
292
00:14:53,174 --> 00:14:58,774
And as I've told many of you, I have deep
concerns that our enthusiasm about AI is
293
00:14:58,774 --> 00:15:03,360
directionally correct, but we're one generation
of companies too soon for all of the pieces.
294
00:15:03,360 --> 00:15:05,920
And when I say all the pieces, it's not just
the technology.
295
00:15:06,000 --> 00:15:07,279
It's the business model.
296
00:15:07,279 --> 00:15:08,399
It's distribution.
297
00:15:08,480 --> 00:15:09,840
It's user behavior.
298
00:15:09,840 --> 00:15:13,475
It there's, like, a lot of things that have to
you know, I I was talking with someone about
299
00:15:13,475 --> 00:15:15,634
the differences between Webvan and Instacart.
300
00:15:15,634 --> 00:15:19,955
And aside from Instacart not having warehouses
and all these other things, Instacart happened
301
00:15:19,955 --> 00:15:20,914
after Uber.
302
00:15:20,914 --> 00:15:22,355
It wasn't just a technology shift.
303
00:15:22,355 --> 00:15:25,475
There had been a behavior shift that people
were used to getting stuff delivered on their
304
00:15:25,475 --> 00:15:25,875
phone.
305
00:15:25,875 --> 00:15:29,419
There were other companies that had figured out
some of the like, a lot of stuff had been
306
00:15:29,419 --> 00:15:32,220
figured out, and it wasn't just the technology
piece.
307
00:15:32,220 --> 00:15:34,779
So one is the direction and timing are really
important.
308
00:15:34,779 --> 00:15:40,699
The other thing is it oftentimes takes time to
figure out where the real value capture
309
00:15:40,699 --> 00:15:42,940
opportunities are in a new ecosystem.
310
00:15:43,345 --> 00:15:47,105
In the Internet, everyone was like, oh, I wanna
be infrastructure.
311
00:15:47,105 --> 00:15:50,304
And then it turned out that, like, there are
people who built data centers, and for a while,
312
00:15:50,304 --> 00:15:51,024
that was a good idea.
313
00:15:51,024 --> 00:15:53,264
Then it turned out that building routers was a
good idea.
314
00:15:53,264 --> 00:15:57,519
So if you were Cisco or Juniper and building
the plumbing, but maybe laying fiber in the
315
00:15:57,519 --> 00:16:01,040
ground and trying to operate fiber wasn't as
good at business even though we really needed
316
00:16:01,040 --> 00:16:01,600
fiber.
317
00:16:01,600 --> 00:16:06,559
And I I say this because when I look at AI, I
don't have really any doubts that directionally
318
00:16:06,559 --> 00:16:12,315
it's gonna be a transformative technology and
probably on a faster time cycle than mobile or
319
00:16:12,315 --> 00:16:17,035
cloud, which I would argue were fifteen to
twenty year cycles before we really had the
320
00:16:17,035 --> 00:16:17,835
plumbing in place.
321
00:16:17,835 --> 00:16:22,075
But even if it's twice as fast and it takes
seven years, that to me suggests there's a lot
322
00:16:22,075 --> 00:16:24,235
of companies that are being funded that will
not make it.
323
00:16:24,235 --> 00:16:27,330
And the other thing is, from those other
cycles, is exuberance.
324
00:16:27,330 --> 00:16:30,610
There's a period of time where people are like,
I just need to invest in this theme.
325
00:16:30,610 --> 00:16:34,529
And if you read that article from The
Information, my takeaway is a lot of people
326
00:16:34,769 --> 00:16:39,194
don't have a well developed thesis on how this
is all gonna play out.
327
00:16:39,194 --> 00:16:43,754
They're just like, this is the hot thing, and
my job as a venture capital investor is to
328
00:16:43,754 --> 00:16:48,554
invest in the hot thing and hope that when the
dust settles and we figure this out, that I'm
329
00:16:48,554 --> 00:16:49,514
in the right companies.
330
00:16:49,514 --> 00:16:51,034
That's really not how I operate.
331
00:16:51,240 --> 00:16:55,799
So we're taking the risk of just saying the
alternative path is you do some investing in
332
00:16:55,799 --> 00:16:59,559
this theme, but you also wait until you have
enough clarity around what you think works and
333
00:16:59,559 --> 00:17:02,839
where you think value is gonna accrue, that you
start investing in those companies.
334
00:17:02,839 --> 00:17:06,525
So if you'd waited and done sort of some of the
second generation Internet stuff, you would
335
00:17:06,525 --> 00:17:07,404
pick up some good companies.
336
00:17:07,404 --> 00:17:11,325
For example, once we knew that the web server
was an important piece of the three tier
337
00:17:11,325 --> 00:17:13,484
architecture, they were really great company.
338
00:17:13,484 --> 00:17:17,404
Once we figured out that, you know, gen one
website builders like Angel Fire and those
339
00:17:17,404 --> 00:17:18,980
weren't really that valuable.
340
00:17:18,980 --> 00:17:23,059
But with some Squarespace, like in a lot of
cases, you waited and said there will be a
341
00:17:23,059 --> 00:17:25,860
better version of this thing that comes along,
you could have made a lot of money.
342
00:17:25,860 --> 00:17:29,619
I wanna go back to that example that you had
about Uber and Instacart and how Instacart
343
00:17:29,619 --> 00:17:34,565
started later and that behavior change for from
a consumer perspective laid the groundwork and
344
00:17:34,565 --> 00:17:36,884
a really strong foundation for it to be
successful.
345
00:17:36,884 --> 00:17:42,884
What do you think needs to happen from a
consumer standpoint when we think about AI?
346
00:17:42,884 --> 00:17:46,884
And when I think about consumer, yes, I think
individual people using them, but also on the b
347
00:17:46,884 --> 00:17:50,909
to b side as well, companies, etcetera, in
order for folks to feel like there's going to
348
00:17:50,909 --> 00:17:56,029
be a stronghold and people will know how to
actually use leverage and build upon these.
349
00:17:56,029 --> 00:17:57,950
I think it's kind of like Internet search.
350
00:17:57,950 --> 00:18:00,775
I think in the beginning, people didn't know
how to use the Internet.
351
00:18:00,775 --> 00:18:02,214
They didn't know how to use Google to search.
352
00:18:02,214 --> 00:18:05,894
But there was a set of people who understood
Boolean operators and understood how to write a
353
00:18:05,894 --> 00:18:06,454
good query.
354
00:18:06,454 --> 00:18:09,255
And if this sounds like prompt engineering, it
reminds me a lot of it.
355
00:18:09,255 --> 00:18:12,695
There were people who were, like, more skilled
in using the tool, and those people were able
356
00:18:12,695 --> 00:18:13,815
to get a lot more out of it.
357
00:18:13,815 --> 00:18:19,109
And eventually, people understood, I'm gonna
have to know how to use this in my job and in
358
00:18:19,109 --> 00:18:19,829
my life.
359
00:18:19,910 --> 00:18:23,990
I'd argue most people still aren't that good at
searching for information on the Internet, but
360
00:18:23,990 --> 00:18:26,710
it would be embarrassing to say you don't know
how to use Google today.
361
00:18:26,710 --> 00:18:29,775
I don't know that it's embarrassing to say
you're not good at ChatGPT today.
362
00:18:29,775 --> 00:18:30,654
Don't know if it's embarrassing at all.
363
00:18:30,654 --> 00:18:34,575
And I think right now, the funny thing is
investors and people who use this stuff a lot
364
00:18:34,575 --> 00:18:38,894
are reasonably skilled at getting good
information out of ChatGPT, and they're getting
365
00:18:38,894 --> 00:18:42,494
a lot of leverage out of it or or Anthropic or
LAMA, whatever you wanna use.
366
00:18:42,494 --> 00:18:43,295
But most people aren't.
367
00:18:43,480 --> 00:18:46,200
But most people also don't have to be good at
it yet.
368
00:18:46,200 --> 00:18:50,519
And so I think what needs to happen is most
people need to get comfortable and familiar
369
00:18:50,519 --> 00:18:51,319
with AI.
370
00:18:51,319 --> 00:18:53,720
And that might not be typing into a text box.
371
00:18:53,720 --> 00:18:54,839
It might be talking to a device.
372
00:18:54,839 --> 00:18:57,240
It might be voice is the thing that unlocks it
for people.
373
00:18:57,240 --> 00:19:00,295
It might take Apple getting AI right to cross
that Rubicon.
374
00:19:00,295 --> 00:19:03,974
But I think once people are like, I use AI
regularly to do stuff.
375
00:19:03,894 --> 00:19:08,775
I think right now, it's students and knowledge
workers on either end are really maybe for
376
00:19:08,775 --> 00:19:09,815
maybe for different reasons.
377
00:19:09,815 --> 00:19:13,255
Knowledge workers may be out of fear and a
desire to be more productive, and students out
378
00:19:13,255 --> 00:19:14,695
of a desire to do well, I won't say.
379
00:19:14,759 --> 00:19:16,119
To do better in school, we'll say.
380
00:19:16,119 --> 00:19:20,279
And I think for the people in the middle, it
doesn't feel urgent or necessary to be good at
381
00:19:20,279 --> 00:19:20,759
AI yet.
382
00:19:20,759 --> 00:19:24,119
And I think once people are used to using it,
you can take for granted that people will know
383
00:19:24,119 --> 00:19:25,640
what to do with AI enabled products.
384
00:19:25,640 --> 00:19:27,160
And I think right now, that's just not true.
385
00:19:27,160 --> 00:19:30,744
And there's a difference between playing around
with products versus weaving them into your day
386
00:19:30,744 --> 00:19:31,705
to day life.
387
00:19:31,705 --> 00:19:35,384
There's so much more to be discussed there, I'm
really excited to see how it all turns out.
388
00:19:35,464 --> 00:19:37,065
But we are all out of time for today.
389
00:19:37,065 --> 00:19:38,585
Thank you, Charles, for joining in.
390
00:19:38,585 --> 00:19:41,224
Thank you, Neon, for joining in as well.
391
00:19:41,224 --> 00:19:45,340
We will talk with everyone next week, but
please like and subscribe in the meantime.
392
00:19:45,340 --> 00:19:45,980
Thank you.
393
00:19:45,980 --> 00:19:46,539
Bye.
394
00:19:46,539 --> 00:19:47,099
Bye.
395
00:19:47,099 --> 00:19:47,420
Bye.
00:00:00,000 --> 00:00:04,559
I've talked to founders who feel this same
frustration, which is, hey.
2
00:00:04,559 --> 00:00:07,359
I signed up for the venture capital rocket
ship.
3
00:00:07,359 --> 00:00:10,559
Now that I know more about my business, it
isn't one of those.
4
00:00:10,559 --> 00:00:11,839
How do I get off?
5
00:00:11,839 --> 00:00:13,759
It's the week of May 5.
6
00:00:13,759 --> 00:00:17,265
Welcome to the Learning Corner, a Ventures
podcast.
7
00:00:21,824 --> 00:00:24,144
Welcome to The Learning Corner by Precursor.
8
00:00:24,144 --> 00:00:29,664
I'm Mia Farnam, and I am joined by our GP and
managing partner, Charles Hudson, where we will
9
00:00:29,664 --> 00:00:34,280
be talking through the articles and Goodreads
that caught our team's attention over the past
10
00:00:34,280 --> 00:00:34,759
week.
11
00:00:34,759 --> 00:00:40,119
This week, we're also lucky enough to have one
of our awesome graduate school interns, Leon,
12
00:00:40,119 --> 00:00:42,439
join us in our virtual studio.
13
00:00:42,520 --> 00:00:43,640
Welcome, Leon.
14
00:00:43,640 --> 00:00:45,399
I always learn so much from our discussions.
15
00:00:45,399 --> 00:00:46,679
Thank you for letting me join this week.
16
00:00:46,695 --> 00:00:47,734
Excited to jump in.
17
00:00:47,734 --> 00:00:48,054
Cool.
18
00:00:48,054 --> 00:00:53,335
So our first topic is a blog post from Edited
Capital titled, we need a VC prenup creating
19
00:00:53,335 --> 00:00:55,015
off ramps for tech businesses.
20
00:00:55,015 --> 00:00:56,854
It addresses a growing tension in venture.
21
00:00:56,854 --> 00:01:00,695
What happens when a startup no longer fits the
traditional scale or die model, but still has a
22
00:01:00,695 --> 00:01:01,174
viable business?
23
00:01:01,420 --> 00:01:06,619
The Post proposes that instead of forcing a
binary outcome, either raise more capital or
24
00:01:06,619 --> 00:01:09,420
shut down, we should develop better off ramps
for founders.
25
00:01:09,420 --> 00:01:13,739
Written from the POV of a PE firm, this
obviously could include private equity
26
00:01:13,739 --> 00:01:17,915
acquisitions or growth buyouts that allow a
company to keep operating even if it doesn't
27
00:01:17,915 --> 00:01:19,354
have venture scale upside.
28
00:01:19,354 --> 00:01:23,834
It's a really compelling argument in a time
when we're seeing venture evolve with new
29
00:01:23,834 --> 00:01:27,435
instruments, secondaries, liquidity tools,
giving founders more optionality.
30
00:01:27,435 --> 00:01:31,780
But historically, private equity and early
stage VC live in separate universes.
31
00:01:31,780 --> 00:01:35,540
We're starting to see a little bit of a
blurring of lines between late stage growth,
32
00:01:35,540 --> 00:01:37,939
crossover capital, and then earlier PE moves.
33
00:01:37,939 --> 00:01:39,780
Perhaps this becomes more of a natural step.
34
00:01:39,780 --> 00:01:43,755
You know, we've talked about this and how the
eventually goes to some seems to be growing up.
35
00:01:43,755 --> 00:01:49,115
We're seeing more continuity between early
stage VC and PE firms rather than the more
36
00:01:49,115 --> 00:01:51,674
traditional graduations to late stage venture.
37
00:01:51,674 --> 00:01:52,635
Do you think that's a good thing?
38
00:01:52,635 --> 00:01:57,040
What kinds of relationships should early stage
funds be building with downstream capital
39
00:01:57,040 --> 00:01:57,920
partners today?
40
00:01:57,920 --> 00:02:00,400
I mean, I read through the article, and I was
like, yes.
41
00:02:00,400 --> 00:02:04,959
We already have many companies that, with the
best intentions, will fall off the venture
42
00:02:04,959 --> 00:02:05,840
rocket ship.
43
00:02:05,840 --> 00:02:11,074
And, you know, I've talked to founders who feel
this same frustration, which is like, hey.
44
00:02:11,074 --> 00:02:13,794
I signed up for the venture capital rocket
ship.
45
00:02:13,794 --> 00:02:17,075
Now that I know more about my business, it
isn't one of those.
46
00:02:17,155 --> 00:02:18,194
How do I get off?
47
00:02:18,194 --> 00:02:20,194
And I think the author is right.
48
00:02:20,194 --> 00:02:21,555
We don't have a good off ramp.
49
00:02:21,555 --> 00:02:25,469
And I think some of this is just the structural
differences in what makes a good venture
50
00:02:25,469 --> 00:02:28,110
capital investment and what makes a good PE
investment.
51
00:02:28,110 --> 00:02:31,230
And, you know, we have companies in our
portfolio that are trying to navigate this.
52
00:02:31,230 --> 00:02:35,710
They're growing, but they're not growing fast
enough to maybe unlock the next round.
53
00:02:35,710 --> 00:02:39,675
But they're not companies that in under any
circumstances should be shut down.
54
00:02:39,675 --> 00:02:45,514
And the difficulty is actually in how do you
take a company where most of the product and
55
00:02:45,514 --> 00:02:50,155
operating decisions that were made for the
first couple of years were all oriented toward
56
00:02:50,155 --> 00:02:50,474
growth.
57
00:02:50,490 --> 00:02:55,290
The hiring plan, the product development plan,
the business model, the pry were all oriented
58
00:02:55,290 --> 00:02:55,930
towards growth.
59
00:02:55,930 --> 00:03:00,569
And then you have to sort of, like, in midair,
change gears and say, all the things we were
60
00:03:00,569 --> 00:03:03,450
focused on, growth, and, you know, now we're to
our profitability.
61
00:03:03,450 --> 00:03:05,155
We're gonna flip our whole mindset.
62
00:03:05,155 --> 00:03:09,794
If you wanna get on that PE path because that's
a path that does prioritize financial
63
00:03:09,794 --> 00:03:12,594
performance, profitability, operational
excellence.
64
00:03:12,594 --> 00:03:15,474
And you also think that the other thing that's
missing here is for that to even be on the
65
00:03:15,474 --> 00:03:17,395
table, you have to hit some minimum scale.
66
00:03:17,395 --> 00:03:18,435
Maybe it's $10,000,000.
67
00:03:18,560 --> 00:03:19,759
Maybe it's $5,000,000.
68
00:03:19,759 --> 00:03:20,400
Maybe it's 20.
69
00:03:20,400 --> 00:03:22,159
There's some minimum scale.
70
00:03:22,159 --> 00:03:26,400
So I would argue that we have a good off ramp
right now for companies that are not on the
71
00:03:26,400 --> 00:03:28,239
venture trajectory but are subscale.
72
00:03:28,239 --> 00:03:30,080
Those companies should shut down or sell.
73
00:03:30,080 --> 00:03:34,534
So if you can't get to a couple million in ARR
and you've raised VC, the most likely outcome
74
00:03:34,534 --> 00:03:36,375
for your business is shut down or sale.
75
00:03:36,375 --> 00:03:39,735
And I think as you get to the ten or fifteen
million dollar revenue market, it gets more
76
00:03:39,735 --> 00:03:43,094
interesting because then you could build a
business that's more profitable.
77
00:03:43,094 --> 00:03:45,735
That could be a tuck in acquisition that could
be interesting to PE.
78
00:03:45,735 --> 00:03:49,550
But oftentimes, I find the people who are
interested in signing up for fast growth are
79
00:03:49,550 --> 00:03:54,430
not necessarily the people who are interested
in or best suited to run the more profitable,
80
00:03:54,590 --> 00:03:56,590
slower growing version of the same company.
81
00:03:56,590 --> 00:04:00,430
Elaborating on that last part that you
mentioned, at the earliest stages when we come
82
00:04:00,430 --> 00:04:05,574
in, have there been signals that you've seen
that you can almost tell years before that
83
00:04:05,574 --> 00:04:10,455
perhaps divergence in the road occurs that this
could be potentially a great route for a
84
00:04:10,455 --> 00:04:14,614
private equity kind of path or buyout versus
this is a company that's either going to shoot
85
00:04:14,614 --> 00:04:17,269
off and grow rocket ship wise or will be shut
down.
86
00:04:17,269 --> 00:04:21,029
Because I think we're gonna be starting to
straddle the middle road a lot, so it'll be
87
00:04:21,029 --> 00:04:23,350
figuring out how to discern between the two
paths quickly.
88
00:04:23,350 --> 00:04:27,110
I mean, historically, the answer has been, if
you're a venture capitalist, you should try to
89
00:04:27,110 --> 00:04:31,110
screen out those companies that you think are
gonna get on this path, and you should avoid
90
00:04:31,110 --> 00:04:31,430
them.
91
00:04:31,430 --> 00:04:31,669
Yeah.
92
00:04:31,774 --> 00:04:36,735
And when I read a lot of the things about seed
strapping that people are writing, I don't know
93
00:04:36,735 --> 00:04:40,014
how much of that is aspirational versus it's
actually actionable.
94
00:04:40,014 --> 00:04:42,495
There are more people I've talked to, and I
I've come around this.
95
00:04:42,495 --> 00:04:44,415
We're gonna have two kinds of venture backed
companies.
96
00:04:44,415 --> 00:04:48,519
We're gonna have companies that raise
$10,000,000 or less and figure out how to get
97
00:04:48,519 --> 00:04:51,639
on their own self sustaining, ideally, high
growth path.
98
00:04:51,639 --> 00:04:54,920
And then we're gonna have companies that raise
as much money as humanly possible, and I don't
99
00:04:54,920 --> 00:04:56,759
think we're gonna have that much in between.
100
00:04:56,759 --> 00:05:00,279
And the question for the companies in the
middle is gonna be, can you still get
101
00:05:00,279 --> 00:05:02,854
attractive outcomes if you raise a little bit
of money?
102
00:05:02,854 --> 00:05:07,014
I think about companies like Buffer and others
that have been fairly judicious in the amount
103
00:05:07,014 --> 00:05:09,894
of money they've raised and are still, even in
our own portfolio, healthy.
104
00:05:09,894 --> 00:05:14,055
Like, there are companies I think there is not
an inherent tension between being capital
105
00:05:14,055 --> 00:05:14,935
efficient and growing.
106
00:05:14,935 --> 00:05:15,414
It's funny.
107
00:05:15,414 --> 00:05:19,270
Back in the stone ages of venture, companies
got profitable, like, fairly early in their
108
00:05:19,270 --> 00:05:19,750
life.
109
00:05:19,750 --> 00:05:23,350
It was an important step to make sure that the
business actually worked because you were gonna
110
00:05:23,350 --> 00:05:26,870
take that company public someday, and we've
we're pretty far away from that.
111
00:05:26,870 --> 00:05:27,910
When did that change?
112
00:05:27,910 --> 00:05:29,830
Can you harken back to those days and about
113
00:05:30,154 --> 00:05:30,634
what happened?
114
00:05:30,634 --> 00:05:31,274
Thousands.
115
00:05:31,274 --> 00:05:33,435
It's like everyone's like, well, growth is more
important.
116
00:05:33,435 --> 00:05:34,954
We'll solve profitability later.
117
00:05:34,954 --> 00:05:37,595
We never sort of came back to that in the
venture business.
118
00:05:37,595 --> 00:05:39,514
There was so much more money that's coming to
the business.
119
00:05:39,514 --> 00:05:43,675
There are people who will finance longer
stretches of upside down financial performance
120
00:05:43,675 --> 00:05:44,555
than before.
121
00:05:44,555 --> 00:05:48,529
It used to be you had to fix this stuff because
the next person in the chain demanded it, and
122
00:05:48,529 --> 00:05:52,449
now you can go pretty far in your life as a
private company without solving for
123
00:05:52,449 --> 00:05:53,009
profitability.
124
00:05:53,009 --> 00:05:58,210
My last question for this one is what role
should we as early stage investors play in
125
00:05:58,210 --> 00:06:00,365
helping our founders navigate this decision?
126
00:06:00,365 --> 00:06:05,725
Is there a clear duty of care to helping them
explore off ramps, or are we still too anchored
127
00:06:05,725 --> 00:06:07,084
to the power law model?
128
00:06:07,084 --> 00:06:10,285
And is this just something that's happening now
more than ever, just given all of the
129
00:06:10,285 --> 00:06:12,925
conversation around liquidity and need from
LPs, etcetera?
130
00:06:12,925 --> 00:06:16,339
I don't think most VCs want to be in this
business.
131
00:06:16,339 --> 00:06:20,180
When say this business, I mean the business of
working with companies that they've invested in
132
00:06:20,180 --> 00:06:23,300
that are subscale, but maybe there's an
alternative path.
133
00:06:23,300 --> 00:06:26,660
I think most VCs I know wanna spend their money
and time on the rocket ship companies.
134
00:06:26,660 --> 00:06:30,500
But I do think there's this duty of care that,
you know, if you made a commitment to a founder
135
00:06:30,500 --> 00:06:33,334
to work with them, it hopefully was a thick and
thin commitment.
136
00:06:33,334 --> 00:06:38,774
And I wonder if firms will start to in the same
way as they added board partners, I wonder if
137
00:06:38,774 --> 00:06:39,894
some firms will just say, hey.
138
00:06:39,894 --> 00:06:40,214
Look.
139
00:06:40,214 --> 00:06:43,654
These companies require a different set of
resources, a different set of guidance.
140
00:06:43,899 --> 00:06:45,979
I wanna spend my time on the high growth stuff.
141
00:06:45,979 --> 00:06:49,740
We're gonna bring in an operating partner whose
job it is to be the board member and shepherd
142
00:06:49,740 --> 00:06:51,339
these companies to the second path.
143
00:06:51,339 --> 00:06:55,500
Because I think right now, the belief is that
second path is a lower scale outcome path.
144
00:06:55,579 --> 00:06:59,964
If you get a few of those things that really
pop, attention follows money, and GC firms will
145
00:06:59,964 --> 00:07:01,485
pay a lot more attention to those companies.
146
00:07:01,485 --> 00:07:04,204
Well, it's a great bridge from my point of view
into our next topic.
147
00:07:04,204 --> 00:07:08,285
Bloomberg reported last week that LightSpeed
Venture Partners has officially become
148
00:07:09,689 --> 00:07:14,649
investment adviser, an IRA, joining other
larger firms like Sequoia, Andres and Horowitz,
149
00:07:14,649 --> 00:07:18,649
and General Catalyst, and evolving beyond the
traditional venture capital model.
150
00:07:18,649 --> 00:07:22,664
This move enables Lightspeed to invest in a
broader range of assets beyond just start up
151
00:07:22,664 --> 00:07:27,464
equity, including secondaries, public stocks,
crypto, and AI led roll ups without being
152
00:07:27,464 --> 00:07:31,865
limited to this 20% cap that typically applies
to non RIA firms.
153
00:07:31,865 --> 00:07:36,904
This shift underscores a larger transformation
in the venture ecosystem as larger firms adopt
154
00:07:36,810 --> 00:07:41,449
PE style strategies and blur the lines between
venture capital, private equity, and asset
155
00:07:41,449 --> 00:07:42,169
management.
156
00:07:42,169 --> 00:07:47,290
This reclassification reflects the growing
consensus that venture capital, especially at
157
00:07:47,290 --> 00:07:52,514
scale, is becoming more diversified in
structure, strategy, and ambition, and that
158
00:07:52,514 --> 00:07:57,714
traditional VC alone may no longer be able to
meet the expectations of LPs or the operational
159
00:07:57,714 --> 00:07:59,235
goals of larger firms.
160
00:07:59,235 --> 00:08:04,035
Charles, from your perspective, are these firms
setting the pace for what the future of venture
161
00:08:04,035 --> 00:08:09,170
looks like, or are they simply outliers playing
a completely different game altogether?
162
00:08:09,250 --> 00:08:14,850
I think that all of the big firms that aren't
RIAs are going to become RIAs for a couple
163
00:08:14,850 --> 00:08:15,410
reasons.
164
00:08:15,410 --> 00:08:18,964
The nice thing about being what's called an
exempt adviser is as long as you're a venture
165
00:08:18,964 --> 00:08:23,285
capital firm or no more than 20% of your
activity is in the areas you mentioned, you
166
00:08:23,285 --> 00:08:27,524
have a much lighter regulatory compliance
burden with the SEC, with other regulators too.
167
00:08:27,524 --> 00:08:31,685
So if you're a small venture firm like
Precursor, it means you don't have to have a
168
00:08:30,750 --> 00:08:35,149
full on compliance team, and we don't have to
have a compliance person editing the learning
169
00:08:35,149 --> 00:08:38,110
quarter to make sure we're not making a forward
looking or marketing.
170
00:08:38,110 --> 00:08:40,830
It's just easier, but it's a limiting factor.
171
00:08:40,830 --> 00:08:45,149
And I think this is, as you highlighted, it's a
function of venture getting bigger.
172
00:08:45,149 --> 00:08:50,404
And, you know, below a certain scale, the trade
off between being exempt but being limited in
173
00:08:50,404 --> 00:08:54,164
the products you can offer is probably a good
trade off for most firms, unless you really
174
00:08:54,164 --> 00:08:55,684
wanna do crypto or secondaries.
175
00:08:55,684 --> 00:08:59,920
And now I think these firms are like, well,
we're not really venture capital per se.
176
00:08:59,920 --> 00:09:04,320
We are broadly diversified asset management
firms that are anchored in venture capital as
177
00:09:04,320 --> 00:09:05,360
our core product.
178
00:09:05,440 --> 00:09:09,519
In the same way that, like, BlackRock is a
multi asset firm, a lot of the PE firms have
179
00:09:09,519 --> 00:09:10,720
private credit arms now.
180
00:09:10,720 --> 00:09:12,800
And I think this opens the door for a couple of
things.
181
00:09:12,800 --> 00:09:16,485
One, you've already seen General Catalyst
essentially start to acquire other venture
182
00:09:16,485 --> 00:09:16,884
firms.
183
00:09:16,884 --> 00:09:21,285
I think you will see registered investment
adviser VC firms acquire other adjacent
184
00:09:21,285 --> 00:09:21,924
businesses.
185
00:09:21,924 --> 00:09:25,524
You know, two of the three firms you mentioned
already have or will have wealth management
186
00:09:25,524 --> 00:09:27,285
practices on their own platforms.
187
00:09:27,285 --> 00:09:30,040
I expect they will look a lot less like venture
capital firms.
188
00:09:30,040 --> 00:09:33,639
I also think if the management I have no reason
to believe this is true.
189
00:09:33,639 --> 00:09:34,600
I have no inside information.
190
00:09:34,600 --> 00:09:39,160
If the management of those firms have any
interest in going public or being acquired by a
191
00:09:39,160 --> 00:09:40,894
larger private equity firm.
192
00:09:40,894 --> 00:09:44,254
All the people who would buy them are
registered, and in order to go public, they
193
00:09:44,254 --> 00:09:45,615
would likely need to be registered.
194
00:09:45,615 --> 00:09:49,295
And the last thing I'll say is it's very clear
to me that the largest firms in our industry
195
00:09:49,295 --> 00:09:51,134
plan to continue to get bigger.
196
00:09:51,134 --> 00:09:55,379
And at some point, the only way to get bigger
is you have to have products other than venture
197
00:09:55,379 --> 00:09:56,820
capital under your umbrella.
198
00:09:56,820 --> 00:10:02,419
So I think this was like the natural evolution
for these firms, given their desire to grow AUM
199
00:10:02,419 --> 00:10:03,700
and, you know, to scale.
200
00:10:03,700 --> 00:10:08,644
How do you think this affects the way early
stage firms, like precursor, are perceived by
201
00:10:08,644 --> 00:10:14,644
founders and LPs to create pressure at the GP
level to expand scope of our offerings, or is
202
00:10:14,644 --> 00:10:17,365
staying focused still a good competitive
strategy?
203
00:10:17,365 --> 00:10:21,720
I think it's actually quite smart of these
firms to register.
204
00:10:21,879 --> 00:10:25,639
Because at some point, you know, we've spent
the last two years being like, what is venture
205
00:10:25,639 --> 00:10:26,120
capital?
206
00:10:26,120 --> 00:10:26,919
Like, what counts?
207
00:10:26,919 --> 00:10:30,279
And I think these firms are like, well,
whatever a venture capital does is venture
208
00:10:30,279 --> 00:10:30,840
capital.
209
00:10:30,919 --> 00:10:32,279
But even that has a ceiling.
210
00:10:32,279 --> 00:10:35,394
So at some point, you're like, we're actually
not a venture firm.
211
00:10:35,394 --> 00:10:38,674
We are a broadly diversified private investment
firm.
212
00:10:38,674 --> 00:10:42,834
And at some point, I'm sure these folks will
dabble in other things like private credit or
213
00:10:42,834 --> 00:10:44,274
maybe even public equities.
214
00:10:44,274 --> 00:10:47,714
But at some point, you're just like, we're so
big that we're not just a venture capital firm,
215
00:10:47,714 --> 00:10:48,754
so that's the wrong label.
216
00:10:48,754 --> 00:10:52,769
I'm very curious to see what these folks decide
to call these new businesses.
217
00:10:52,850 --> 00:10:56,610
Most of the terms have been pejorative, and
most of the pejorative terms have come from
218
00:10:56,610 --> 00:11:01,649
little VC funds, asset gatherers, you know,
investment banks, you know, all all designed to
219
00:11:01,649 --> 00:11:03,169
poke fun at their size and scale.
220
00:11:03,169 --> 00:11:06,985
And given how many smart people there are, I
think somebody at one of those places is gonna
221
00:11:06,985 --> 00:11:12,585
rebrand these mega funds as some new cool
sounding asset in service of raising more
222
00:11:12,585 --> 00:11:12,904
money.
223
00:11:12,904 --> 00:11:16,264
Last question here because we talked about LPs,
GP.
224
00:11:16,264 --> 00:11:20,825
For founders with this sort of move, what
should this mean for them if they're engaging
225
00:11:20,825 --> 00:11:24,490
with different funds who are considering these
new types of ways to diversify?
226
00:11:24,490 --> 00:11:26,409
And also, does it matter from their
perspective?
227
00:11:26,409 --> 00:11:28,169
I don't think it matters today Yeah.
228
00:11:28,250 --> 00:11:31,769
Because even though a lot of these firms are
branching into other things, you know,
229
00:11:31,769 --> 00:11:34,664
secondaries is very much still in the lane of
venture.
230
00:11:34,664 --> 00:11:37,865
Crypto can be, but doesn't have to be in the
lane of venture.
231
00:11:37,865 --> 00:11:42,664
I would argue despite their size, most of these
firms still have venture capital, an early
232
00:11:42,664 --> 00:11:45,544
stage venture capital as an important piece of
what they do.
233
00:11:45,544 --> 00:11:50,339
It's not impossible to imagine a world five to
ten years from now where venture is less than
234
00:11:50,339 --> 00:11:52,899
half of the AUM and activity at these firms.
235
00:11:52,899 --> 00:11:54,500
They've got so many other businesses.
236
00:11:54,500 --> 00:11:58,100
And then you start to ask yourself, as a
founder, do I wanna be at a firm where venture
237
00:11:58,100 --> 00:12:02,434
is the main event, do I wanna be an only event,
or do I wanna be at a firm where venture is a
238
00:12:02,434 --> 00:12:03,075
part of what they do?
239
00:12:03,075 --> 00:12:07,714
Historically, founders have chosen the pure
play over the side hustle VC thing.
240
00:12:07,714 --> 00:12:11,714
I don't know if that will continue to be the
case because if you could still get Marc
241
00:12:11,714 --> 00:12:16,410
Andreessen or Roloff on your board, even though
Sequoia and Andreessen are much bigger firms, I
242
00:12:16,410 --> 00:12:19,610
think most founders would be like, I don't care
how much time he spends on, you know, Sequoia
243
00:12:19,610 --> 00:12:21,129
Heritage or Andreessen Perennials.
244
00:12:21,129 --> 00:12:23,610
As long as he's got time for my board meeting
and he's giving me advice, I'm in.
245
00:12:23,610 --> 00:12:28,535
It makes me think about those funds that are
kind of in the middle, so not small, not mega
246
00:12:28,535 --> 00:12:32,615
yet, where their minds will go after seeing
these mega funds create more diversified
247
00:12:32,615 --> 00:12:34,134
strategies around how they move money.
248
00:12:34,134 --> 00:12:36,054
I'm curious to know where they will lean.
249
00:12:36,054 --> 00:12:40,690
I think a lot of people have deep questions
about if you think about the barbell, I think
250
00:12:40,690 --> 00:12:43,490
most people can tell you a story about what
happens on either end.
251
00:12:43,490 --> 00:12:46,850
I think the middle and most people are like, is
that a sustainable place to live?
252
00:12:46,850 --> 00:12:49,089
What does it mean to be one of those firms?
253
00:12:49,169 --> 00:12:52,449
And I think that's the next unanswered question
in venture.
254
00:12:52,449 --> 00:12:57,184
What happens to the three hundred and fifty to
seven hundred and fifty million dollar series a
255
00:12:57,184 --> 00:12:58,384
focused venture fund?
256
00:12:58,384 --> 00:13:00,464
Like, is that a model that works today?
257
00:13:00,464 --> 00:13:04,784
In our final piece, the information shares
highlights from their recent events on the
258
00:13:04,784 --> 00:13:09,950
state of AI today and where investors examined
whether top AI companies were the next Googles
259
00:13:09,950 --> 00:13:11,149
or Yahoos.
260
00:13:11,149 --> 00:13:15,870
Even as enormous amounts of capital are flowing
into foundational models like OpenAI and
261
00:13:15,870 --> 00:13:19,789
Anthropic, many investors still remain
uncertain about things like monetization,
262
00:13:19,789 --> 00:13:22,830
enterprise adoption, and sustainable
differentiation.
263
00:13:22,830 --> 00:13:27,065
The piece really noted that many AI companies
actually haven't found their AdWords moment
264
00:13:27,065 --> 00:13:27,384
yet.
265
00:13:27,384 --> 00:13:31,705
In other words, many companies are still using
subscriptions as a stopgap as they figure out
266
00:13:31,705 --> 00:13:32,585
monetization.
267
00:13:32,585 --> 00:13:35,144
And the current state of AI revenue is
unpredictable.
268
00:13:35,225 --> 00:13:41,450
Enterprise adoption is cautious and picks and
shovels infrastructure plays like GPU, rental,
269
00:13:41,450 --> 00:13:46,250
data centers carry significant risk, and then
geopolitical and regulatory uncertainty only
270
00:13:46,250 --> 00:13:47,929
continue to add to those challenges.
271
00:13:47,929 --> 00:13:52,075
Across your career, Charles, you've seen
multiple technology cycles, Internet, cloud,
272
00:13:52,075 --> 00:13:52,394
mobile.
273
00:13:52,394 --> 00:13:56,715
You know, investors are overlaying those
learnings from these past cycles as a lens to
274
00:13:56,715 --> 00:13:58,795
make sense of the current AI waves.
275
00:13:58,795 --> 00:14:02,634
But what are some of the themes from previous
cycles that still hold true today?
276
00:14:02,634 --> 00:14:07,139
As you know, Leanne, I have a lot of maybe out
of step views, and I'll tell you as I I've told
277
00:14:07,139 --> 00:14:07,700
the team.
278
00:14:07,700 --> 00:14:12,740
My lesson from February is everybody was pretty
much directionally right about what the
279
00:14:12,740 --> 00:14:15,220
Internet was gonna mean for the economy and
society.
280
00:14:15,220 --> 00:14:17,779
If anything, we underestimated the potential.
281
00:14:17,779 --> 00:14:19,394
People hadn't really thought through.
282
00:14:19,394 --> 00:14:22,514
Really, the consumer commerce opportunities in
Internet were were obvious.
283
00:14:22,514 --> 00:14:25,794
I don't think we really knew how much we would
use the Internet to communicate, and I think no
284
00:14:25,794 --> 00:14:30,195
one I knew had really pieced together what does
the Internet plus mobile mean for just, like,
285
00:14:30,195 --> 00:14:31,970
redefining communication site?
286
00:14:31,970 --> 00:14:35,170
And I say we were directionally right because
we were totally wrong on the timeline.
287
00:14:35,170 --> 00:14:39,490
If you look at the just ironically, amounts of
money that were lit on fire in, we'll call it,
288
00:14:39,490 --> 00:14:44,855
'97 to 02/2001, it felt big because the scale
of the venture business was much smaller then.
289
00:14:44,855 --> 00:14:48,455
We could light that amount of money on Fire
Today and Venture and probably not notice.
290
00:14:48,615 --> 00:14:52,855
So one is the never confuse, basically, being
directionally correct with getting timing
291
00:14:52,855 --> 00:14:53,174
right.
292
00:14:53,174 --> 00:14:58,774
And as I've told many of you, I have deep
concerns that our enthusiasm about AI is
293
00:14:58,774 --> 00:15:03,360
directionally correct, but we're one generation
of companies too soon for all of the pieces.
294
00:15:03,360 --> 00:15:05,920
And when I say all the pieces, it's not just
the technology.
295
00:15:06,000 --> 00:15:07,279
It's the business model.
296
00:15:07,279 --> 00:15:08,399
It's distribution.
297
00:15:08,480 --> 00:15:09,840
It's user behavior.
298
00:15:09,840 --> 00:15:13,475
It there's, like, a lot of things that have to
you know, I I was talking with someone about
299
00:15:13,475 --> 00:15:15,634
the differences between Webvan and Instacart.
300
00:15:15,634 --> 00:15:19,955
And aside from Instacart not having warehouses
and all these other things, Instacart happened
301
00:15:19,955 --> 00:15:20,914
after Uber.
302
00:15:20,914 --> 00:15:22,355
It wasn't just a technology shift.
303
00:15:22,355 --> 00:15:25,475
There had been a behavior shift that people
were used to getting stuff delivered on their
304
00:15:25,475 --> 00:15:25,875
phone.
305
00:15:25,875 --> 00:15:29,419
There were other companies that had figured out
some of the like, a lot of stuff had been
306
00:15:29,419 --> 00:15:32,220
figured out, and it wasn't just the technology
piece.
307
00:15:32,220 --> 00:15:34,779
So one is the direction and timing are really
important.
308
00:15:34,779 --> 00:15:40,699
The other thing is it oftentimes takes time to
figure out where the real value capture
309
00:15:40,699 --> 00:15:42,940
opportunities are in a new ecosystem.
310
00:15:43,345 --> 00:15:47,105
In the Internet, everyone was like, oh, I wanna
be infrastructure.
311
00:15:47,105 --> 00:15:50,304
And then it turned out that, like, there are
people who built data centers, and for a while,
312
00:15:50,304 --> 00:15:51,024
that was a good idea.
313
00:15:51,024 --> 00:15:53,264
Then it turned out that building routers was a
good idea.
314
00:15:53,264 --> 00:15:57,519
So if you were Cisco or Juniper and building
the plumbing, but maybe laying fiber in the
315
00:15:57,519 --> 00:16:01,040
ground and trying to operate fiber wasn't as
good at business even though we really needed
316
00:16:01,040 --> 00:16:01,600
fiber.
317
00:16:01,600 --> 00:16:06,559
And I I say this because when I look at AI, I
don't have really any doubts that directionally
318
00:16:06,559 --> 00:16:12,315
it's gonna be a transformative technology and
probably on a faster time cycle than mobile or
319
00:16:12,315 --> 00:16:17,035
cloud, which I would argue were fifteen to
twenty year cycles before we really had the
320
00:16:17,035 --> 00:16:17,835
plumbing in place.
321
00:16:17,835 --> 00:16:22,075
But even if it's twice as fast and it takes
seven years, that to me suggests there's a lot
322
00:16:22,075 --> 00:16:24,235
of companies that are being funded that will
not make it.
323
00:16:24,235 --> 00:16:27,330
And the other thing is, from those other
cycles, is exuberance.
324
00:16:27,330 --> 00:16:30,610
There's a period of time where people are like,
I just need to invest in this theme.
325
00:16:30,610 --> 00:16:34,529
And if you read that article from The
Information, my takeaway is a lot of people
326
00:16:34,769 --> 00:16:39,194
don't have a well developed thesis on how this
is all gonna play out.
327
00:16:39,194 --> 00:16:43,754
They're just like, this is the hot thing, and
my job as a venture capital investor is to
328
00:16:43,754 --> 00:16:48,554
invest in the hot thing and hope that when the
dust settles and we figure this out, that I'm
329
00:16:48,554 --> 00:16:49,514
in the right companies.
330
00:16:49,514 --> 00:16:51,034
That's really not how I operate.
331
00:16:51,240 --> 00:16:55,799
So we're taking the risk of just saying the
alternative path is you do some investing in
332
00:16:55,799 --> 00:16:59,559
this theme, but you also wait until you have
enough clarity around what you think works and
333
00:16:59,559 --> 00:17:02,839
where you think value is gonna accrue, that you
start investing in those companies.
334
00:17:02,839 --> 00:17:06,525
So if you'd waited and done sort of some of the
second generation Internet stuff, you would
335
00:17:06,525 --> 00:17:07,404
pick up some good companies.
336
00:17:07,404 --> 00:17:11,325
For example, once we knew that the web server
was an important piece of the three tier
337
00:17:11,325 --> 00:17:13,484
architecture, they were really great company.
338
00:17:13,484 --> 00:17:17,404
Once we figured out that, you know, gen one
website builders like Angel Fire and those
339
00:17:17,404 --> 00:17:18,980
weren't really that valuable.
340
00:17:18,980 --> 00:17:23,059
But with some Squarespace, like in a lot of
cases, you waited and said there will be a
341
00:17:23,059 --> 00:17:25,860
better version of this thing that comes along,
you could have made a lot of money.
342
00:17:25,860 --> 00:17:29,619
I wanna go back to that example that you had
about Uber and Instacart and how Instacart
343
00:17:29,619 --> 00:17:34,565
started later and that behavior change for from
a consumer perspective laid the groundwork and
344
00:17:34,565 --> 00:17:36,884
a really strong foundation for it to be
successful.
345
00:17:36,884 --> 00:17:42,884
What do you think needs to happen from a
consumer standpoint when we think about AI?
346
00:17:42,884 --> 00:17:46,884
And when I think about consumer, yes, I think
individual people using them, but also on the b
347
00:17:46,884 --> 00:17:50,909
to b side as well, companies, etcetera, in
order for folks to feel like there's going to
348
00:17:50,909 --> 00:17:56,029
be a stronghold and people will know how to
actually use leverage and build upon these.
349
00:17:56,029 --> 00:17:57,950
I think it's kind of like Internet search.
350
00:17:57,950 --> 00:18:00,775
I think in the beginning, people didn't know
how to use the Internet.
351
00:18:00,775 --> 00:18:02,214
They didn't know how to use Google to search.
352
00:18:02,214 --> 00:18:05,894
But there was a set of people who understood
Boolean operators and understood how to write a
353
00:18:05,894 --> 00:18:06,454
good query.
354
00:18:06,454 --> 00:18:09,255
And if this sounds like prompt engineering, it
reminds me a lot of it.
355
00:18:09,255 --> 00:18:12,695
There were people who were, like, more skilled
in using the tool, and those people were able
356
00:18:12,695 --> 00:18:13,815
to get a lot more out of it.
357
00:18:13,815 --> 00:18:19,109
And eventually, people understood, I'm gonna
have to know how to use this in my job and in
358
00:18:19,109 --> 00:18:19,829
my life.
359
00:18:19,910 --> 00:18:23,990
I'd argue most people still aren't that good at
searching for information on the Internet, but
360
00:18:23,990 --> 00:18:26,710
it would be embarrassing to say you don't know
how to use Google today.
361
00:18:26,710 --> 00:18:29,775
I don't know that it's embarrassing to say
you're not good at ChatGPT today.
362
00:18:29,775 --> 00:18:30,654
Don't know if it's embarrassing at all.
363
00:18:30,654 --> 00:18:34,575
And I think right now, the funny thing is
investors and people who use this stuff a lot
364
00:18:34,575 --> 00:18:38,894
are reasonably skilled at getting good
information out of ChatGPT, and they're getting
365
00:18:38,894 --> 00:18:42,494
a lot of leverage out of it or or Anthropic or
LAMA, whatever you wanna use.
366
00:18:42,494 --> 00:18:43,295
But most people aren't.
367
00:18:43,480 --> 00:18:46,200
But most people also don't have to be good at
it yet.
368
00:18:46,200 --> 00:18:50,519
And so I think what needs to happen is most
people need to get comfortable and familiar
369
00:18:50,519 --> 00:18:51,319
with AI.
370
00:18:51,319 --> 00:18:53,720
And that might not be typing into a text box.
371
00:18:53,720 --> 00:18:54,839
It might be talking to a device.
372
00:18:54,839 --> 00:18:57,240
It might be voice is the thing that unlocks it
for people.
373
00:18:57,240 --> 00:19:00,295
It might take Apple getting AI right to cross
that Rubicon.
374
00:19:00,295 --> 00:19:03,974
But I think once people are like, I use AI
regularly to do stuff.
375
00:19:03,894 --> 00:19:08,775
I think right now, it's students and knowledge
workers on either end are really maybe for
376
00:19:08,775 --> 00:19:09,815
maybe for different reasons.
377
00:19:09,815 --> 00:19:13,255
Knowledge workers may be out of fear and a
desire to be more productive, and students out
378
00:19:13,255 --> 00:19:14,695
of a desire to do well, I won't say.
379
00:19:14,759 --> 00:19:16,119
To do better in school, we'll say.
380
00:19:16,119 --> 00:19:20,279
And I think for the people in the middle, it
doesn't feel urgent or necessary to be good at
381
00:19:20,279 --> 00:19:20,759
AI yet.
382
00:19:20,759 --> 00:19:24,119
And I think once people are used to using it,
you can take for granted that people will know
383
00:19:24,119 --> 00:19:25,640
what to do with AI enabled products.
384
00:19:25,640 --> 00:19:27,160
And I think right now, that's just not true.
385
00:19:27,160 --> 00:19:30,744
And there's a difference between playing around
with products versus weaving them into your day
386
00:19:30,744 --> 00:19:31,705
to day life.
387
00:19:31,705 --> 00:19:35,384
There's so much more to be discussed there, I'm
really excited to see how it all turns out.
388
00:19:35,464 --> 00:19:37,065
But we are all out of time for today.
389
00:19:37,065 --> 00:19:38,585
Thank you, Charles, for joining in.
390
00:19:38,585 --> 00:19:41,224
Thank you, Neon, for joining in as well.
391
00:19:41,224 --> 00:19:45,340
We will talk with everyone next week, but
please like and subscribe in the meantime.
392
00:19:45,340 --> 00:19:45,980
Thank you.
393
00:19:45,980 --> 00:19:46,539
Bye.
394
00:19:46,539 --> 00:19:47,099
Bye.
395
00:19:47,099 --> 00:19:47,420
Bye.
