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I think if you're a founder who's been out of
the market for two years, I don't have a good
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analogy, but it's like you've been living in a
cave.
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I told my friend it's kind of like the first
episode of season two in silo.
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She, like, gets out of the silo and she gets
past the VR field and then she sees this, like,
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wasteland.
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You're like, oh, it actually was as bad out
here as they said it was.
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And I really do think that that's the
experience I see is happening for a lot of
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founders whose priors on the market aren't
current.
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It's the week of September 7.
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Welcome to the Learning Corner, a Precursor
Ventures podcast.
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Welcome to the Learning Corner by Precursor.
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I'm Mia Fornham, and I'm joined by our GP and
managing partner, Charles Hudson, where we will
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be talking through the articles and Goodreads
that caught our team's attention over the past
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week.
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Our first piece this week comes from Ethan
Kurzweil, co founder and managing partner at
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chemistry titled Go Big or The Middle Ground is
Gone.
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He opens with the pink elephant thought
experiment, the idea that once you're told not
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to picture something, you can't help but see
it, and argues that the venture industry is
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stuck on its own version, the trillion dollar
startup that no one can unsee.
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Now that we know a trillicorn is buildable on a
venture timeline, capital at every stage is
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concentrating into the biggest possible swings,
and the most ambitious founders have learned
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that the more aspirational they sound, the more
funding they attract.
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The catch is that the biggest winners of every
era rarely started out looking that big.
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Ethan's worry is that the pedestrian double or
triple has become a relic and that progress in
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out of favor sectors like SaaS, consumer, and
commerce turns linear, gated on a stubborn few
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tinkering outside the spotlight.
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His advice to founders is to pick a poll.
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If you are out of favor, make sure your
business and your psyche can survive there
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longer than you think.
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And if you're a consensus needle mover, that is
not a train.
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You can get off to rest.
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Wanted to pause here for your thoughts on the
piece first, Charles, since it was a it was a
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good one.
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I feel like I've given various versions of this
feedback to our portfolio companies.
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It's varied from sort of nobody cares.
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That's the only problem with your business to
it's binary.
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There's I told some of the day there are haves
and have nots.
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And if you're not sure which one you are,
you're a have not.
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And I think it is true.
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I think people are holding two things in their
brain at the same time.
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One, the cursor SpaceX, and soon probably to be
on top of an open AI, are outcomes that are so
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extraordinary that they, like, reset your
brain.
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Well, if that's possible, why play for anything
less?
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And I'm like, okay.
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We've seen this three times now.
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Does three times mean that it's the new goal?
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Or does three times mean you've really seen
through three once in a career, once in a
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lifetime companies in a very short time frame.
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What I do know is most people are just like,
can't unsee it.
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And so I've told a handful of companies that's
yeah. You
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You have like a very high probability of being
a billion dollar company, but a 0% chance of
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being a $10,000,000,000 company, and nobody's
gonna fund that.
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They're like, what do you mean?
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I'm like, a billion dollars is a big outcome
for you, for a fund of our size, for just about
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everybody, except for people who are managing
gigantic pools of capital.
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For them, it's just not a needle moving
outcome, and they are in the needle moving
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outcome business.
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And so I think as those funds remain large or
even potentially get larger, the scale of
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interesting outcomes is only gonna get bigger.
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And I think we have a lot of very, very large
private companies, whether that's a Base Ten or
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a Harvey or all these companies that are worth
well more than $10,000,000,000 as private
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companies, still with, in my opinion, probably
a fair amount of work to do and no immediate
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plans to go public.
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I think if you're a founder who's been out of
the market for two years, I don't have a good
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analogy, but it's like you've been living in a
cave.
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You go out of the cave.
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I told my friend it's kind of like the first
episode of season two in silo.
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She, like, gets out of the silo, and she gets
past the VR field, and then she sees this,
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like, wasteland.
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And you're like, oh, it actually was as bad out
here as they said it was.
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And I really do think that that's the
experience I see is happening for a lot of
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founders whose priors on the market aren't
current.
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I had a whole strategy meeting with one of our
founders heading into fundraising in the next
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couple of weeks.
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And you, of course, go down the list of
different funds you wanna reach out to, what
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tier they fit in, and conversation has changed
so much since the last time they went out.
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Yeah.
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So maybe two years ago, I could totally see
that person being interested.
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Let's just put out the soft connect and we'll
see where they fall.
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Now I could firmly say there's a large portion
of that list that I would say, I wouldn't waste
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your time or your energy there.
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I think our time is best spent elsewhere.
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And I think that's created a whole new dynamic
of like, there used to be a lot more
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conversation for seed, and there still is, of
who's leading your seed or the next round and
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what that means to the audience.
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Now, if a large portion of those more buzzy
firms are only corralling around specific
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thing, who kind of gets to signal something
positive for the things that are a little bit
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out of favor, or do people just not care?
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Is the question mark.
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And if that's the case, then I'm sort of like,
okay, let's talk about fundraising from a
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perspective of like, who can we get around the
table to just supply the capital and make this
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journey less painful for you, and then we have
to talk about things in the long run.
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It's such a new and different journey.
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I think the other thing that's hard is I have
friends who used to be specialists, and those
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specialist firms have strategies that will not
get them into SpaceX, OpenAI, or Anthropic.
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And most of them have concluded a strategy that
doesn't get me into a Trillicorn is not a
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venture strategy I wanna execute.
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So the other thing, founders have been like,
what about this person?
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They invest in my category.
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I'm like, they used to.
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Now they don't.
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Now they are an AI infrastructure and physical
AI investor, and they're like, but how?
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And I'm like, because that's where the money
is, and they'd like to remain employed as
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venture capitalists.
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And I I I think there's one other wrinkle,
which is we have some really great high
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performing companies that are in sectors that
are not in favor, and those companies just
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continue to execute.
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And their job and our job is to stay alive and
stay in business long enough for people to
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eventually care.
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And I think the one good thing is there are
lots of industries where AI infrastructure is
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not the most important business problem.
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And then those categories, m and a markets are
good.
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Those cut those companies still feel pressure
to acquire things to grow, and it's very
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possible.
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I told someone for the first time ever, kinda
changed my tune on when we should get strategic
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investors involved in companies.
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I'm like, it's not so bad to get them involved
earlier if financial investors are really not a
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realistic option.
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As is the theme of our pod for the last year,
every week, I feel like things are different
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than the week before.
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Some of the biggest names that we know in tech
today just weren't the original ideas that they
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came to market as.
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And that was part of Venture.
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That was like a beautiful aspect of what people
were drawn to the space on.
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Now, I think it's very clear that you have to
come to the market with a massive idea.
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That's what people are calling for.
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And you have to stick to it, which is very
different.
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My question is, do you think this is the new
era of venture?
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If we give you tons of money, you have to
commit to this idea and make it come to life,
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and you have to present it as such.
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We don't need you to start so niche.
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Or are we just in the bubble?
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Because we always have talked about on the pawn
how venture capital as an asset class is
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maturing.
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And so, therefore, are the ways that we think
about what we seed for first institutional
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rounds, does that look completely different
because there's so much capital on the market?
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And if that's the case, how does that
negatively impact the industry and sway
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founders into building specific archetypes of
companies because that's what they know will
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create the most signal and support?
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I think in a previous episode, we talked about
Yoni's post what capital wants.
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I think these two things are related ideas.
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One is I think most founders are smart to and
they'll say, like, what is the market rewarding
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and funding?
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Oh, it's a very specific type of company.
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If I wanna fundraise, I should build one of
those because raising money there will be much
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easier.
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I think it creates a lot of distortion.
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I also think something we don't talk about
enough is, in many cases, if a VC firm gives
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you or invest, we won't say give, invest a
$100,000,000 in your company, they don't want
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you six months later to be like, oh, here's
$99,500,000 back.
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We couldn't figure it out.
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You're now, in my mind, stuck with the
responsibility of finding a business that is
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worthy of the scale of capital that you've
raised, even if it's not the original idea.
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So you've raised that a billion.
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Great.
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Oh, the thing we were doing didn't work.
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Wonderful.
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You have $99,500,000 to find something Yeah.
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That is a multibillion dollar outcome.
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Have at it.
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And the the sad thing is the VC will move on.
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They'll be like, oh, that company lost their
way.
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They've got a lot of money.
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They better figure it out.
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I'm gonna go find the next company where I'm as
enthusiastic about their prospects as I was
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when I made that investment.
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And the founder is left there to work it out.
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So And it takes a long time to burn a $100,000
too.
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So and I would assume the investors who
exceeded that, they'll be long promoted to
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partner years
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Or
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gone.
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Or gone gone and on to the next.
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Our next piece is a nice bridge from Ethan's.
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If the market is only funding the biggest
possible swings, the next piece is what happens
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after the money lands.
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It's from David Kahn on his Substack titled,
they built the team, they raised the money, now
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what?
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David's observation is that the market's
rational response to an uncertain era has been
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to invest in teams rather than ideas.
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Ideas change and teams stay the same, but every
zig brings a zag, and the zag is a generation
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of well funded startups, wonderful team,
visions, who don't actually know the steps to
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get there.
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And as one founder put it, I know what the
destination is, but I'm trying to figure out
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the steps along the way.
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He traces how we got here.
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Talent that's attracted to big problems and
repelled by details, a venture ecosystem that
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has shifted to a call option mentality.
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The uncomfortable part is that these founders
often have nobody to turn to because admitting
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that there's no plan would demoralize the team,
investors they've already brought on board.
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He also points out that most of the valuable AI
companies of this era were not amorphous at
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all.
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Klay, Harvey, Kerser, and even Anthropic all
started with very concrete problems.
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And OpenAI is really the only one that
succeeded with the open ended search formula.
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His closing distinction is the one that stuck
up most.
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There's a big difference between big vision for
the sake of big vision and big vision because I
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cannot live with myself if I don't solve it.
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How often are you seeing this exact shape right
now?
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I think this is the archetype for a lot of
these, particularly if it's a very strong
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technical team, and they're working on a
technical area of AI.
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One, it might be the fact that only the people
working at that company truly understand Yeah.
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The nature of the technology and solution that
needs to be built.
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And two, I think right now, we're in this era
where I think a lot of people, investors say
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this.
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They don't mean it, but I think they say it
which is like, oh, this is a really smart team.
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They're working on some esoteric problem.
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If this doesn't work, we can probably voice
this team upon a model provider or some other
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large acquirer who will value the AI research
talent and can put it to better use than that
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team could independently.
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And in every news cycle, there's always been
this, oh, well, we have a talented team.
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The worst case scenario is that we will get
team acquired and get our money back.
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And that remains the floor until it isn't.
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And then when it isn't, suddenly you're like,
oh, there's no market for these companies that
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aren't working.
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Oops.
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That changes the calculus for us in terms of
how we have to think about this.
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And that is hard.
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That's a hard that's a that's a hard thing to
deal with.
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So I guess the one thing I come back to is a
long time ago, good friend of mine, founder and
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collective, would always remind me, you know,
capital has no insights.
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And we have founders in our portfolio who have
a lot of money, and they're like, what should I
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do?
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And I'm like, I don't know.
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But spending more money and hiring more people
is probably not gonna get you closer.
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00:11:42,524 --> 00:11:47,404
The answer is probably to find the thing worth
building or they'll solve the question that's
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that you're stuck on, and that's where the
answer lies is, like, in doing the work and
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figuring it out.
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I've met some people who've raised a lot of
money, and I talked to them privately.
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They're like, oh, I don't know what we're
doing.
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We've been giving a lot of money to go after
this problem.
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Step one is we have to sort of define what does
it mean to, like, quote unquote, go after this
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problem.
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We raised a bunch of money to work on the
intersection of AI and molecular science.
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I'm like, what are you building?
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They're like, we don't know.
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But it's gonna be No.
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At the intersection of those two things.
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And I'm like, well, that's that's pretty crazy.
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To play devil's advocate though, I agree with
you.
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Like, capital doesn't equal insights for a good
company.
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But if you're a founder and then you look over
to the right and you just watch one of your
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competitors launch out of Stealth,
$100,000,000.
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Again, these are like unprecedented times.
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Yeah.
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Yeah.
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This is new.
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How do you react to that?
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Because previously, I'd be like, yeah, capital
doesn't equal insight.
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A certain amount doesn't equal insight but buys
you time, buys you distribution.
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In this in this stage, it depends on what
you're building, buys you compute.
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These are all things that I think you have to
weigh differently.
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And I I think, like, the other thing is it used
to be fine.
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Our competitor raised a little bit of money.
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For the next twelve months, there's gonna be
this fog of war where nobody knows who's
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00:12:56,879 --> 00:12:58,480
winning, but they raised last.
256
00:12:58,865 --> 00:13:03,504
When companies are raising like $103,105
$100,000,000, it changes the calculus because
257
00:13:03,504 --> 00:13:06,384
those companies it could take a long time for
the fog of war to clear.
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00:13:06,464 --> 00:13:09,345
And I think that's one of the things that's
changed with the king making.
259
00:13:09,345 --> 00:13:12,225
It used to be like, oh, that company got a
$10,000,000 seed round.
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Everybody else had two.
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That company has a head start and a resource
lead, but they too will have to fundraise in
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two years.
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00:13:19,139 --> 00:13:21,620
Now it's like, that company got a $100,000,000.
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They're not gonna have to they're not gonna
have to fundraise anytime soon.
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They might choose to because things are going
well, but they want have to, which means the
266
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fog of war around their fundraise can persist
far longer.
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00:13:31,595 --> 00:13:32,955
And that's just a different world.
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One of the points of the piece was that for a
lot of these teams that are super talented, but
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have no clear idea of where to chart down
first, they have no comfortable place to go
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from a cap table perspective to share those
feelings.
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00:13:45,750 --> 00:13:50,389
Is that an investor's responsibility to create
that environment, especially in a deal that
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00:13:50,389 --> 00:13:51,269
looks like that?
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00:13:51,429 --> 00:13:53,269
And if so, what's the line?
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Where is your stance on that?
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00:13:54,945 --> 00:13:59,345
And I'm talking, I guess, specifically for big
rounds that look like the ones that we've been
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00:13:59,345 --> 00:14:03,024
talking about, not the first time founder of
the traditional pre c looking round.
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00:14:03,105 --> 00:14:06,865
I think that's a conversation where as a
founder, you gotta go find founder friends.
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00:14:06,865 --> 00:14:09,690
And that's something I think you wanna talk
about peer to peer.
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00:14:09,690 --> 00:14:12,970
Well, I would love it if someone came to me and
said, I'm terrified that I raised too much
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money.
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00:14:13,289 --> 00:14:14,250
And I don't know what to do with it.
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Be like, well, you've already raised it.
283
00:14:15,690 --> 00:14:17,690
So I appreciate you being open and honest.
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00:14:17,690 --> 00:14:20,570
But this is a problem you bought so we can work
on it together.
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00:14:20,570 --> 00:14:24,084
But like, the problem you bought, you signed up
for it when you made the decision to raise this
286
00:14:24,084 --> 00:14:24,644
money.
287
00:14:24,804 --> 00:14:30,245
Our last piece this week is from Nakunj
Khathari, partner at FPV Ventures titled Being
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00:14:30,245 --> 00:14:34,884
Legible to Capital, and it's essentially a
brain dump for founders raising this fall as we
289
00:14:34,884 --> 00:14:37,539
somehow are officially post Labor Day.
290
00:14:37,539 --> 00:14:41,779
His starting point is that this is the most
competitive market he's seen in a while, so
291
00:14:41,779 --> 00:14:44,019
most VCs aren't doing independent work.
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00:14:44,019 --> 00:14:47,940
They're reading off signals off of you and
comparing notes, and the founders who are
293
00:14:47,940 --> 00:14:50,464
winning are the ones who are the most legible.
294
00:14:50,464 --> 00:14:52,225
From there, he gets really tactical.
295
00:14:52,225 --> 00:14:54,784
You wanna figure out who at the firm actually
has leverage.
296
00:14:54,784 --> 00:14:56,865
Get a warm intro to the decision makers.
297
00:14:57,024 --> 00:14:59,504
Ideally, through a founder, they've already
backed.
298
00:14:59,504 --> 00:15:01,184
That's something we've talked about on the pod.
299
00:15:01,184 --> 00:15:04,625
And be careful with the number who say out loud
for round sizes and valuation.
300
00:15:04,779 --> 00:15:09,179
Because if you announce a larger raise that you
need to backtrack, it sees a lot of doubt, and
301
00:15:09,179 --> 00:15:10,379
you really can't take it back.
302
00:15:10,379 --> 00:15:13,019
Some of the counterintuitive bets are some of
my favorites.
303
00:15:13,019 --> 00:15:16,940
He said, VCs don't want a quote unquote deal, a
price that's too good.
304
00:15:16,940 --> 00:15:17,419
Just raise questions.
305
00:15:18,595 --> 00:15:23,634
No established lead will take under 10%, and
never compare your terms to what a competitor
306
00:15:23,634 --> 00:15:26,034
got because it's the single best way to take a
round.
307
00:15:26,034 --> 00:15:30,754
He also flagged how much hiring great people
helps, and that your infraction slide should
308
00:15:30,754 --> 00:15:34,115
always show the current month old numbers smell
like still goods.
309
00:15:34,539 --> 00:15:38,379
His closure is a good reminder that even this
market gets it wrong, and all it takes is one.
310
00:15:38,379 --> 00:15:38,700
Yes.
311
00:15:38,700 --> 00:15:43,660
There's a lot of really specific tactical
advice here, the two week timeline, 10% lore.
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00:15:43,660 --> 00:15:48,115
Are there anything specific in here or things
that he has listed that you believe could
313
00:15:48,115 --> 00:15:51,715
sabotage a fundraiser or things that matter far
more than others?
314
00:15:51,955 --> 00:15:56,674
I think you have to know this sounds really
mean, but I don't mean to I think you have to
315
00:15:56,674 --> 00:15:59,554
know how much money the market thinks you can
handle.
316
00:15:59,715 --> 00:16:05,340
And I've met some founders where I'm just like,
this is a repeat founder who's been successful
317
00:16:05,340 --> 00:16:05,740
before.
318
00:16:05,740 --> 00:16:09,500
People will trust this person with money, or
this is a hot y c company.
319
00:16:09,500 --> 00:16:12,860
Maybe you have questions about the founder, but
because it's a hot y c company, you know
320
00:16:12,860 --> 00:16:14,139
they're gonna raise a lot of money.
321
00:16:14,235 --> 00:16:17,514
And I think you have to just understand the
dynamics of your own fundraise.
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00:16:17,514 --> 00:16:18,794
How much momentum do you really have?
323
00:16:18,794 --> 00:16:19,754
How much leverage do you have?
324
00:16:19,754 --> 00:16:23,514
And like, if you have it and you wanna max on
it, go for it.
325
00:16:23,514 --> 00:16:27,914
Extract as much as you can just knowing that,
like, the people you're extracting from, they
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00:16:27,914 --> 00:16:28,634
feel it too.
327
00:16:28,634 --> 00:16:31,490
And if things go sideways, that that
conversation will be hard.
328
00:16:31,490 --> 00:16:35,889
And if you don't have a ton of momentum or
leverage, you shouldn't act out of weakness,
329
00:16:35,889 --> 00:16:39,570
but you should also acknowledge that like, hey,
not having that experience.
330
00:16:39,649 --> 00:16:42,450
And while there is room to negotiate, we still
need to get a deal done.
331
00:16:42,695 --> 00:16:43,575
And I do agree.
332
00:16:43,575 --> 00:16:45,174
Like, most people don't wanna get a deal.
333
00:16:45,174 --> 00:16:47,975
Like, venture is not like bargain basement
investing.
334
00:16:47,975 --> 00:16:51,495
And I think sometimes people say, well, this YC
company raised at these terms.
335
00:16:51,495 --> 00:16:52,855
I'm like, well, it's because it's YC.
336
00:16:52,855 --> 00:16:53,654
And they're like, what do mean?
337
00:16:53,654 --> 00:16:57,480
It's like, well, YC companies operate with
different rules than non y c companies.
338
00:16:57,480 --> 00:16:58,440
And that's just the thing.
339
00:16:58,440 --> 00:16:59,960
We could argue whether it should be a thing.
340
00:16:59,960 --> 00:17:00,600
It doesn't matter.
341
00:17:00,600 --> 00:17:01,240
The thing.
342
00:17:01,240 --> 00:17:05,320
You know, pegging your hopes and expectations
on someone whose circumstances are different
343
00:17:05,320 --> 00:17:07,320
than yours is a good recipe for disappointment.
344
00:17:07,320 --> 00:17:12,494
I also think right now in this environment,
there's a gigantic premium on storytelling and
345
00:17:12,494 --> 00:17:13,054
narrative.
346
00:17:13,054 --> 00:17:14,494
Everyone's like, oh, have this traction.
347
00:17:14,494 --> 00:17:18,174
I was like, most companies don't have so much
traction that the traction will be the lead
348
00:17:18,174 --> 00:17:18,575
story.
349
00:17:18,575 --> 00:17:22,255
And I was like, and candidly, most investors
are still feeling their way through AI.
350
00:17:22,349 --> 00:17:27,630
So to the extent that they invest, it's usually
not because of like the ARR data or something
351
00:17:27,630 --> 00:17:28,029
like that.
352
00:17:28,029 --> 00:17:32,190
It's usually like, oh, this person told me a
story about the future that feels like the most
353
00:17:32,190 --> 00:17:36,349
likely version of the future that will exist,
and so I'm gonna invest in this company because
354
00:17:36,349 --> 00:17:37,150
I believe this person.
355
00:17:37,384 --> 00:17:41,065
And I think there's some people I I I spent
thirty minutes today with somebody where I was
356
00:17:41,065 --> 00:17:43,144
just like, the narrative doesn't work.
357
00:17:43,144 --> 00:17:46,664
Like, the things you're telling me about this
this category and your product, it doesn't hang
358
00:17:46,664 --> 00:17:49,465
together in an interesting and exciting way, we
have to fix that.
359
00:17:49,465 --> 00:17:52,505
And if we can't fix that, I think you're gonna
have a hard time raising money.
360
00:17:52,849 --> 00:17:56,769
It goes into my last question here, but to
weave the three pieces together that we talked
361
00:17:56,769 --> 00:17:59,490
about this week, they're all circling the same
idea from different angles.
362
00:17:59,490 --> 00:18:04,130
If you had to give one piece of advice to a
founder who is not in a hot, favorable sector
363
00:18:04,130 --> 00:18:07,170
and is raising this fall, what would it be?
364
00:18:07,565 --> 00:18:16,285
I think most people right now seem to have a
pretty firm vision of who they wanna fund from
365
00:18:16,285 --> 00:18:18,365
a profile and background standpoint.
366
00:18:18,365 --> 00:18:21,565
And if you look like that person, regardless of
the firm, it's great.
367
00:18:21,599 --> 00:18:25,440
You could be a repeat founder who had success
in consumer before and is now doing something
368
00:18:25,440 --> 00:18:28,319
in consumer AI and people go, oh, this person
knows consumer.
369
00:18:28,319 --> 00:18:32,319
You could be someone that that VC's known for a
long time and they're giving you money out of,
370
00:18:32,319 --> 00:18:33,679
like, the depth of the relationship.
371
00:18:33,679 --> 00:18:35,839
You could be coming out of a big model
provider.
372
00:18:35,839 --> 00:18:40,054
I think most people have a pretty narrow set of
archetypes that now feel fundable.
373
00:18:40,054 --> 00:18:44,294
And part of this is just not what do I like,
but what do I think other people like me will
374
00:18:44,294 --> 00:18:44,774
like.
375
00:18:44,775 --> 00:18:47,174
And so I think there's a lot of that happening
right now.
376
00:18:47,174 --> 00:18:49,734
And if you don't fit that pattern, it's pretty
tough.
377
00:18:49,734 --> 00:18:50,534
Pretty tough fundraise.
378
00:18:50,720 --> 00:18:52,240
Well, we are all out of time today.
379
00:18:52,240 --> 00:18:53,839
Thank you, Charles, for stopping in.
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00:18:53,839 --> 00:18:56,000
Thank you to all of our listeners for helping
as well.
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00:18:56,000 --> 00:18:58,640
Please like and subscribe, and we'll talk with
you all next week.
382
00:18:58,640 --> 00:18:59,519
Thank you.
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00:18:59,519 --> 00:18:59,839
Bye.
00:00:00,000 --> 00:00:04,240
I think if you're a founder who's been out of
the market for two years, I don't have a good
2
00:00:04,240 --> 00:00:06,240
analogy, but it's like you've been living in a
cave.
3
00:00:06,240 --> 00:00:10,000
I told my friend it's kind of like the first
episode of season two in silo.
4
00:00:10,000 --> 00:00:15,199
She, like, gets out of the silo and she gets
past the VR field and then she sees this, like,
5
00:00:15,199 --> 00:00:15,679
wasteland.
6
00:00:15,765 --> 00:00:19,445
You're like, oh, it actually was as bad out
here as they said it was.
7
00:00:19,445 --> 00:00:23,364
And I really do think that that's the
experience I see is happening for a lot of
8
00:00:23,364 --> 00:00:26,484
founders whose priors on the market aren't
current.
9
00:00:26,804 --> 00:00:28,644
It's the week of September 7.
10
00:00:28,850 --> 00:00:31,969
Welcome to the Learning Corner, a Precursor
Ventures podcast.
11
00:00:32,369 --> 00:00:34,289
Welcome to the Learning Corner by Precursor.
12
00:00:34,289 --> 00:00:39,170
I'm Mia Fornham, and I'm joined by our GP and
managing partner, Charles Hudson, where we will
13
00:00:39,170 --> 00:00:43,409
be talking through the articles and Goodreads
that caught our team's attention over the past
14
00:00:43,570 --> 00:00:43,810
week.
15
00:00:44,045 --> 00:00:48,924
Our first piece this week comes from Ethan
Kurzweil, co founder and managing partner at
16
00:00:48,924 --> 00:00:53,884
chemistry titled Go Big or The Middle Ground is
Gone.
17
00:00:54,045 --> 00:00:59,259
He opens with the pink elephant thought
experiment, the idea that once you're told not
18
00:00:59,259 --> 00:01:03,739
to picture something, you can't help but see
it, and argues that the venture industry is
19
00:01:03,739 --> 00:01:08,540
stuck on its own version, the trillion dollar
startup that no one can unsee.
20
00:01:08,939 --> 00:01:14,795
Now that we know a trillicorn is buildable on a
venture timeline, capital at every stage is
21
00:01:14,795 --> 00:01:19,275
concentrating into the biggest possible swings,
and the most ambitious founders have learned
22
00:01:19,275 --> 00:01:22,875
that the more aspirational they sound, the more
funding they attract.
23
00:01:23,530 --> 00:01:28,329
The catch is that the biggest winners of every
era rarely started out looking that big.
24
00:01:28,650 --> 00:01:34,650
Ethan's worry is that the pedestrian double or
triple has become a relic and that progress in
25
00:01:34,650 --> 00:01:41,405
out of favor sectors like SaaS, consumer, and
commerce turns linear, gated on a stubborn few
26
00:01:41,405 --> 00:01:43,005
tinkering outside the spotlight.
27
00:01:43,005 --> 00:01:45,325
His advice to founders is to pick a poll.
28
00:01:45,325 --> 00:01:49,564
If you are out of favor, make sure your
business and your psyche can survive there
29
00:01:49,564 --> 00:01:50,444
longer than you think.
30
00:01:50,799 --> 00:01:54,239
And if you're a consensus needle mover, that is
not a train.
31
00:01:54,239 --> 00:01:55,920
You can get off to rest.
32
00:01:55,920 --> 00:01:59,439
Wanted to pause here for your thoughts on the
piece first, Charles, since it was a it was a
33
00:01:59,439 --> 00:01:59,840
good one.
34
00:01:59,840 --> 00:02:04,400
I feel like I've given various versions of this
feedback to our portfolio companies.
35
00:02:04,400 --> 00:02:06,560
It's varied from sort of nobody cares.
36
00:02:06,560 --> 00:02:09,495
That's the only problem with your business to
it's binary.
37
00:02:09,495 --> 00:02:11,895
There's I told some of the day there are haves
and have nots.
38
00:02:11,895 --> 00:02:14,375
And if you're not sure which one you are,
you're a have not.
39
00:02:14,375 --> 00:02:16,215
And I think it is true.
40
00:02:16,215 --> 00:02:18,775
I think people are holding two things in their
brain at the same time.
41
00:02:19,260 --> 00:02:25,099
One, the cursor SpaceX, and soon probably to be
on top of an open AI, are outcomes that are so
42
00:02:25,099 --> 00:02:27,819
extraordinary that they, like, reset your
brain.
43
00:02:27,819 --> 00:02:30,699
Well, if that's possible, why play for anything
less?
44
00:02:30,699 --> 00:02:31,500
And I'm like, okay.
45
00:02:31,500 --> 00:02:34,175
We've seen this three times now.
46
00:02:34,335 --> 00:02:37,455
Does three times mean that it's the new goal?
47
00:02:37,534 --> 00:02:41,775
Or does three times mean you've really seen
through three once in a career, once in a
48
00:02:41,775 --> 00:02:44,814
lifetime companies in a very short time frame.
49
00:02:44,974 --> 00:02:47,375
What I do know is most people are just like,
can't unsee it.
50
00:02:47,375 --> 00:02:50,069
And so I've told a handful of companies that's
yeah. You
51
00:02:49,909 --> 00:02:55,030
You have like a very high probability of being
a billion dollar company, but a 0% chance of
52
00:02:55,030 --> 00:02:57,750
being a $10,000,000,000 company, and nobody's
gonna fund that.
53
00:02:57,750 --> 00:02:58,550
They're like, what do you mean?
54
00:02:58,550 --> 00:03:03,189
I'm like, a billion dollars is a big outcome
for you, for a fund of our size, for just about
55
00:03:03,189 --> 00:03:06,925
everybody, except for people who are managing
gigantic pools of capital.
56
00:03:06,925 --> 00:03:10,685
For them, it's just not a needle moving
outcome, and they are in the needle moving
57
00:03:10,685 --> 00:03:11,485
outcome business.
58
00:03:11,485 --> 00:03:16,525
And so I think as those funds remain large or
even potentially get larger, the scale of
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interesting outcomes is only gonna get bigger.
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00:03:18,365 --> 00:03:23,389
And I think we have a lot of very, very large
private companies, whether that's a Base Ten or
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a Harvey or all these companies that are worth
well more than $10,000,000,000 as private
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companies, still with, in my opinion, probably
a fair amount of work to do and no immediate
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plans to go public.
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I think if you're a founder who's been out of
the market for two years, I don't have a good
65
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analogy, but it's like you've been living in a
cave.
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You go out of the cave.
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00:03:40,694 --> 00:03:44,375
I told my friend it's kind of like the first
episode of season two in silo.
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She, like, gets out of the silo, and she gets
past the VR field, and then she sees this,
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like, wasteland.
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And you're like, oh, it actually was as bad out
here as they said it was.
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And I really do think that that's the
experience I see is happening for a lot of
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founders whose priors on the market aren't
current.
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I had a whole strategy meeting with one of our
founders heading into fundraising in the next
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couple of weeks.
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And you, of course, go down the list of
different funds you wanna reach out to, what
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tier they fit in, and conversation has changed
so much since the last time they went out.
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Yeah.
78
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So maybe two years ago, I could totally see
that person being interested.
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Let's just put out the soft connect and we'll
see where they fall.
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Now I could firmly say there's a large portion
of that list that I would say, I wouldn't waste
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your time or your energy there.
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I think our time is best spent elsewhere.
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And I think that's created a whole new dynamic
of like, there used to be a lot more
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conversation for seed, and there still is, of
who's leading your seed or the next round and
85
00:04:42,479 --> 00:04:43,920
what that means to the audience.
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00:04:44,000 --> 00:04:49,199
Now, if a large portion of those more buzzy
firms are only corralling around specific
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thing, who kind of gets to signal something
positive for the things that are a little bit
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out of favor, or do people just not care?
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Is the question mark.
90
00:04:56,214 --> 00:04:59,334
And if that's the case, then I'm sort of like,
okay, let's talk about fundraising from a
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perspective of like, who can we get around the
table to just supply the capital and make this
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journey less painful for you, and then we have
to talk about things in the long run.
93
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It's such a new and different journey.
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I think the other thing that's hard is I have
friends who used to be specialists, and those
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specialist firms have strategies that will not
get them into SpaceX, OpenAI, or Anthropic.
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00:05:18,814 --> 00:05:22,654
And most of them have concluded a strategy that
doesn't get me into a Trillicorn is not a
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venture strategy I wanna execute.
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00:05:24,574 --> 00:05:26,654
So the other thing, founders have been like,
what about this person?
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They invest in my category.
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I'm like, they used to.
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Now they don't.
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Now they are an AI infrastructure and physical
AI investor, and they're like, but how?
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And I'm like, because that's where the money
is, and they'd like to remain employed as
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venture capitalists.
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00:05:39,050 --> 00:05:44,169
And I I I think there's one other wrinkle,
which is we have some really great high
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performing companies that are in sectors that
are not in favor, and those companies just
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continue to execute.
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And their job and our job is to stay alive and
stay in business long enough for people to
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eventually care.
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And I think the one good thing is there are
lots of industries where AI infrastructure is
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not the most important business problem.
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And then those categories, m and a markets are
good.
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Those cut those companies still feel pressure
to acquire things to grow, and it's very
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possible.
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I told someone for the first time ever, kinda
changed my tune on when we should get strategic
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investors involved in companies.
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I'm like, it's not so bad to get them involved
earlier if financial investors are really not a
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realistic option.
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As is the theme of our pod for the last year,
every week, I feel like things are different
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than the week before.
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Some of the biggest names that we know in tech
today just weren't the original ideas that they
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came to market as.
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And that was part of Venture.
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That was like a beautiful aspect of what people
were drawn to the space on.
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Now, I think it's very clear that you have to
come to the market with a massive idea.
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That's what people are calling for.
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And you have to stick to it, which is very
different.
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My question is, do you think this is the new
era of venture?
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If we give you tons of money, you have to
commit to this idea and make it come to life,
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and you have to present it as such.
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We don't need you to start so niche.
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Or are we just in the bubble?
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Because we always have talked about on the pawn
how venture capital as an asset class is
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maturing.
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And so, therefore, are the ways that we think
about what we seed for first institutional
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rounds, does that look completely different
because there's so much capital on the market?
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And if that's the case, how does that
negatively impact the industry and sway
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founders into building specific archetypes of
companies because that's what they know will
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create the most signal and support?
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I think in a previous episode, we talked about
Yoni's post what capital wants.
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I think these two things are related ideas.
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One is I think most founders are smart to and
they'll say, like, what is the market rewarding
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and funding?
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Oh, it's a very specific type of company.
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If I wanna fundraise, I should build one of
those because raising money there will be much
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easier.
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I think it creates a lot of distortion.
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I also think something we don't talk about
enough is, in many cases, if a VC firm gives
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you or invest, we won't say give, invest a
$100,000,000 in your company, they don't want
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you six months later to be like, oh, here's
$99,500,000 back.
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We couldn't figure it out.
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You're now, in my mind, stuck with the
responsibility of finding a business that is
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worthy of the scale of capital that you've
raised, even if it's not the original idea.
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So you've raised that a billion.
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Great.
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Oh, the thing we were doing didn't work.
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Wonderful.
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You have $99,500,000 to find something Yeah.
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That is a multibillion dollar outcome.
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Have at it.
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And the the sad thing is the VC will move on.
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They'll be like, oh, that company lost their
way.
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They've got a lot of money.
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They better figure it out.
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I'm gonna go find the next company where I'm as
enthusiastic about their prospects as I was
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when I made that investment.
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And the founder is left there to work it out.
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So And it takes a long time to burn a $100,000
too.
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So and I would assume the investors who
exceeded that, they'll be long promoted to
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partner years
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Or
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gone.
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Or gone gone and on to the next.
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Our next piece is a nice bridge from Ethan's.
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If the market is only funding the biggest
possible swings, the next piece is what happens
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after the money lands.
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It's from David Kahn on his Substack titled,
they built the team, they raised the money, now
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what?
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David's observation is that the market's
rational response to an uncertain era has been
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to invest in teams rather than ideas.
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Ideas change and teams stay the same, but every
zig brings a zag, and the zag is a generation
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of well funded startups, wonderful team,
visions, who don't actually know the steps to
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get there.
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And as one founder put it, I know what the
destination is, but I'm trying to figure out
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the steps along the way.
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He traces how we got here.
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Talent that's attracted to big problems and
repelled by details, a venture ecosystem that
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has shifted to a call option mentality.
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The uncomfortable part is that these founders
often have nobody to turn to because admitting
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that there's no plan would demoralize the team,
investors they've already brought on board.
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He also points out that most of the valuable AI
companies of this era were not amorphous at
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all.
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00:09:58,450 --> 00:10:02,930
Klay, Harvey, Kerser, and even Anthropic all
started with very concrete problems.
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And OpenAI is really the only one that
succeeded with the open ended search formula.
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His closing distinction is the one that stuck
up most.
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There's a big difference between big vision for
the sake of big vision and big vision because I
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cannot live with myself if I don't solve it.
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How often are you seeing this exact shape right
now?
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I think this is the archetype for a lot of
these, particularly if it's a very strong
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technical team, and they're working on a
technical area of AI.
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One, it might be the fact that only the people
working at that company truly understand Yeah.
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The nature of the technology and solution that
needs to be built.
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And two, I think right now, we're in this era
where I think a lot of people, investors say
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this.
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They don't mean it, but I think they say it
which is like, oh, this is a really smart team.
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They're working on some esoteric problem.
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If this doesn't work, we can probably voice
this team upon a model provider or some other
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large acquirer who will value the AI research
talent and can put it to better use than that
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team could independently.
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And in every news cycle, there's always been
this, oh, well, we have a talented team.
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The worst case scenario is that we will get
team acquired and get our money back.
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And that remains the floor until it isn't.
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And then when it isn't, suddenly you're like,
oh, there's no market for these companies that
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aren't working.
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Oops.
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That changes the calculus for us in terms of
how we have to think about this.
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And that is hard.
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That's a hard that's a that's a hard thing to
deal with.
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00:11:25,809 --> 00:11:30,929
So I guess the one thing I come back to is a
long time ago, good friend of mine, founder and
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collective, would always remind me, you know,
capital has no insights.
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And we have founders in our portfolio who have
a lot of money, and they're like, what should I
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do?
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And I'm like, I don't know.
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But spending more money and hiring more people
is probably not gonna get you closer.
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The answer is probably to find the thing worth
building or they'll solve the question that's
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that you're stuck on, and that's where the
answer lies is, like, in doing the work and
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figuring it out.
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I've met some people who've raised a lot of
money, and I talked to them privately.
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They're like, oh, I don't know what we're
doing.
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We've been giving a lot of money to go after
this problem.
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Step one is we have to sort of define what does
it mean to, like, quote unquote, go after this
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problem.
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We raised a bunch of money to work on the
intersection of AI and molecular science.
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I'm like, what are you building?
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They're like, we don't know.
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But it's gonna be No.
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At the intersection of those two things.
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And I'm like, well, that's that's pretty crazy.
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To play devil's advocate though, I agree with
you.
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Like, capital doesn't equal insights for a good
company.
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But if you're a founder and then you look over
to the right and you just watch one of your
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competitors launch out of Stealth,
$100,000,000.
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Again, these are like unprecedented times.
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Yeah.
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Yeah.
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This is new.
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How do you react to that?
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Because previously, I'd be like, yeah, capital
doesn't equal insight.
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A certain amount doesn't equal insight but buys
you time, buys you distribution.
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In this in this stage, it depends on what
you're building, buys you compute.
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These are all things that I think you have to
weigh differently.
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And I I think, like, the other thing is it used
to be fine.
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Our competitor raised a little bit of money.
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For the next twelve months, there's gonna be
this fog of war where nobody knows who's
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winning, but they raised last.
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00:12:58,865 --> 00:13:03,504
When companies are raising like $103,105
$100,000,000, it changes the calculus because
257
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those companies it could take a long time for
the fog of war to clear.
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And I think that's one of the things that's
changed with the king making.
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It used to be like, oh, that company got a
$10,000,000 seed round.
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Everybody else had two.
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That company has a head start and a resource
lead, but they too will have to fundraise in
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two years.
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Now it's like, that company got a $100,000,000.
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They're not gonna have to they're not gonna
have to fundraise anytime soon.
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They might choose to because things are going
well, but they want have to, which means the
266
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fog of war around their fundraise can persist
far longer.
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And that's just a different world.
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One of the points of the piece was that for a
lot of these teams that are super talented, but
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have no clear idea of where to chart down
first, they have no comfortable place to go
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from a cap table perspective to share those
feelings.
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Is that an investor's responsibility to create
that environment, especially in a deal that
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looks like that?
273
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And if so, what's the line?
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Where is your stance on that?
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And I'm talking, I guess, specifically for big
rounds that look like the ones that we've been
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talking about, not the first time founder of
the traditional pre c looking round.
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I think that's a conversation where as a
founder, you gotta go find founder friends.
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And that's something I think you wanna talk
about peer to peer.
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Well, I would love it if someone came to me and
said, I'm terrified that I raised too much
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money.
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And I don't know what to do with it.
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Be like, well, you've already raised it.
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So I appreciate you being open and honest.
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But this is a problem you bought so we can work
on it together.
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But like, the problem you bought, you signed up
for it when you made the decision to raise this
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money.
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00:14:24,804 --> 00:14:30,245
Our last piece this week is from Nakunj
Khathari, partner at FPV Ventures titled Being
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Legible to Capital, and it's essentially a
brain dump for founders raising this fall as we
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somehow are officially post Labor Day.
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His starting point is that this is the most
competitive market he's seen in a while, so
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most VCs aren't doing independent work.
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They're reading off signals off of you and
comparing notes, and the founders who are
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winning are the ones who are the most legible.
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From there, he gets really tactical.
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You wanna figure out who at the firm actually
has leverage.
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Get a warm intro to the decision makers.
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Ideally, through a founder, they've already
backed.
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00:14:59,504 --> 00:15:01,184
That's something we've talked about on the pod.
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And be careful with the number who say out loud
for round sizes and valuation.
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Because if you announce a larger raise that you
need to backtrack, it sees a lot of doubt, and
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you really can't take it back.
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Some of the counterintuitive bets are some of
my favorites.
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He said, VCs don't want a quote unquote deal, a
price that's too good.
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Just raise questions.
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No established lead will take under 10%, and
never compare your terms to what a competitor
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got because it's the single best way to take a
round.
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00:15:26,034 --> 00:15:30,754
He also flagged how much hiring great people
helps, and that your infraction slide should
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00:15:30,754 --> 00:15:34,115
always show the current month old numbers smell
like still goods.
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His closure is a good reminder that even this
market gets it wrong, and all it takes is one.
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Yes.
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There's a lot of really specific tactical
advice here, the two week timeline, 10% lore.
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Are there anything specific in here or things
that he has listed that you believe could
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00:15:48,115 --> 00:15:51,715
sabotage a fundraiser or things that matter far
more than others?
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00:15:51,955 --> 00:15:56,674
I think you have to know this sounds really
mean, but I don't mean to I think you have to
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know how much money the market thinks you can
handle.
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00:15:59,715 --> 00:16:05,340
And I've met some founders where I'm just like,
this is a repeat founder who's been successful
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before.
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People will trust this person with money, or
this is a hot y c company.
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Maybe you have questions about the founder, but
because it's a hot y c company, you know
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they're gonna raise a lot of money.
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00:16:14,235 --> 00:16:17,514
And I think you have to just understand the
dynamics of your own fundraise.
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How much momentum do you really have?
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How much leverage do you have?
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00:16:19,754 --> 00:16:23,514
And like, if you have it and you wanna max on
it, go for it.
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Extract as much as you can just knowing that,
like, the people you're extracting from, they
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feel it too.
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00:16:28,634 --> 00:16:31,490
And if things go sideways, that that
conversation will be hard.
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And if you don't have a ton of momentum or
leverage, you shouldn't act out of weakness,
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00:16:35,889 --> 00:16:39,570
but you should also acknowledge that like, hey,
not having that experience.
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And while there is room to negotiate, we still
need to get a deal done.
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And I do agree.
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Like, most people don't wanna get a deal.
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00:16:45,174 --> 00:16:47,975
Like, venture is not like bargain basement
investing.
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00:16:47,975 --> 00:16:51,495
And I think sometimes people say, well, this YC
company raised at these terms.
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I'm like, well, it's because it's YC.
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And they're like, what do mean?
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00:16:53,654 --> 00:16:57,480
It's like, well, YC companies operate with
different rules than non y c companies.
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00:16:57,480 --> 00:16:58,440
And that's just the thing.
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00:16:58,440 --> 00:16:59,960
We could argue whether it should be a thing.
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It doesn't matter.
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00:17:00,600 --> 00:17:01,240
The thing.
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00:17:01,240 --> 00:17:05,320
You know, pegging your hopes and expectations
on someone whose circumstances are different
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00:17:05,320 --> 00:17:07,320
than yours is a good recipe for disappointment.
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00:17:07,320 --> 00:17:12,494
I also think right now in this environment,
there's a gigantic premium on storytelling and
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narrative.
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00:17:13,054 --> 00:17:14,494
Everyone's like, oh, have this traction.
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I was like, most companies don't have so much
traction that the traction will be the lead
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00:17:18,174 --> 00:17:18,575
story.
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00:17:18,575 --> 00:17:22,255
And I was like, and candidly, most investors
are still feeling their way through AI.
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00:17:22,349 --> 00:17:27,630
So to the extent that they invest, it's usually
not because of like the ARR data or something
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00:17:27,630 --> 00:17:28,029
like that.
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00:17:28,029 --> 00:17:32,190
It's usually like, oh, this person told me a
story about the future that feels like the most
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00:17:32,190 --> 00:17:36,349
likely version of the future that will exist,
and so I'm gonna invest in this company because
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00:17:36,349 --> 00:17:37,150
I believe this person.
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00:17:37,384 --> 00:17:41,065
And I think there's some people I I I spent
thirty minutes today with somebody where I was
356
00:17:41,065 --> 00:17:43,144
just like, the narrative doesn't work.
357
00:17:43,144 --> 00:17:46,664
Like, the things you're telling me about this
this category and your product, it doesn't hang
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00:17:46,664 --> 00:17:49,465
together in an interesting and exciting way, we
have to fix that.
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00:17:49,465 --> 00:17:52,505
And if we can't fix that, I think you're gonna
have a hard time raising money.
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00:17:52,849 --> 00:17:56,769
It goes into my last question here, but to
weave the three pieces together that we talked
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00:17:56,769 --> 00:17:59,490
about this week, they're all circling the same
idea from different angles.
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00:17:59,490 --> 00:18:04,130
If you had to give one piece of advice to a
founder who is not in a hot, favorable sector
363
00:18:04,130 --> 00:18:07,170
and is raising this fall, what would it be?
364
00:18:07,565 --> 00:18:16,285
I think most people right now seem to have a
pretty firm vision of who they wanna fund from
365
00:18:16,285 --> 00:18:18,365
a profile and background standpoint.
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00:18:18,365 --> 00:18:21,565
And if you look like that person, regardless of
the firm, it's great.
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00:18:21,599 --> 00:18:25,440
You could be a repeat founder who had success
in consumer before and is now doing something
368
00:18:25,440 --> 00:18:28,319
in consumer AI and people go, oh, this person
knows consumer.
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00:18:28,319 --> 00:18:32,319
You could be someone that that VC's known for a
long time and they're giving you money out of,
370
00:18:32,319 --> 00:18:33,679
like, the depth of the relationship.
371
00:18:33,679 --> 00:18:35,839
You could be coming out of a big model
provider.
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00:18:35,839 --> 00:18:40,054
I think most people have a pretty narrow set of
archetypes that now feel fundable.
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00:18:40,054 --> 00:18:44,294
And part of this is just not what do I like,
but what do I think other people like me will
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00:18:44,294 --> 00:18:44,774
like.
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00:18:44,775 --> 00:18:47,174
And so I think there's a lot of that happening
right now.
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00:18:47,174 --> 00:18:49,734
And if you don't fit that pattern, it's pretty
tough.
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00:18:49,734 --> 00:18:50,534
Pretty tough fundraise.
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00:18:50,720 --> 00:18:52,240
Well, we are all out of time today.
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00:18:52,240 --> 00:18:53,839
Thank you, Charles, for stopping in.
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00:18:53,839 --> 00:18:56,000
Thank you to all of our listeners for helping
as well.
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00:18:56,000 --> 00:18:58,640
Please like and subscribe, and we'll talk with
you all next week.
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00:18:58,640 --> 00:18:59,519
Thank you.
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00:18:59,519 --> 00:18:59,839
Bye.
