Episode #73: Startups Need Better Stories, The Value-Add LP Era, Agile Funding Is Back の全文書き起こし

--> 00:01:46,484 position, founders who are willing to tell a bigger, more honest story about who wins, if 32 00:01:46,484 --> 00:01:49,604 they win, have a genuine opening to breakthrough. 33 00:01:49,685 --> 00:01:55,364 I do like that last piece, Ashley's question she poses to founders in search of these better 34 00:01:55,364 --> 00:01:56,004 stories. 35 00:01:56,164 --> 00:01:58,405 Quote, beyond your cap table, who wins if you win? 36 00:01:58,409 --> 00:02:02,810 When you construct your narrative with someone or something else as the hero, your own growth 37 00:02:02,810 --> 00:02:04,490 becomes much more powerful. 38 00:02:04,490 --> 00:02:09,210 Charles, how can founders accomplish this without coming across as disingenuous? 39 00:02:09,210 --> 00:02:14,504 I think if this is done right now, you likely, as a founder, also have to address the fact 40 00:02:14,504 --> 00:02:18,905 that there's growing skepticism about the ulterior motives and prioritization that exists 41 00:02:18,905 --> 00:02:21,544 as your core as an AI startup. 42 00:02:21,544 --> 00:02:26,824 I just think about a lot of the billboards I saw in San Francisco a year and a half ago. 43 00:02:26,824 --> 00:02:30,920 It's like, these are not comforting messages for normal human beings. 44 00:02:31,080 --> 00:02:32,280 Fire all the humans. 45 00:02:32,280 --> 00:02:33,319 Never hire a human. 46 00:02:33,319 --> 00:02:37,800 Like, these are not really narrative arcs that are gonna pull people in. 47 00:02:37,800 --> 00:02:38,760 They're just not. 48 00:02:38,760 --> 00:02:45,034 And I think at times, it's not even just that tech talks to cap tables, but tech just talks 49 00:02:45,034 --> 00:02:45,835 to itself. 50 00:02:45,914 --> 00:02:50,394 You know, I think if you think what are the things that are really animating people about 51 00:02:50,394 --> 00:02:53,514 AI, it's job loss and human irrelevance. 52 00:02:53,674 --> 00:02:59,069 And I think there are some companies whose message is this is inevitable, and we are going 53 00:02:59,069 --> 00:03:01,230 to usher this in as quickly as possible. 54 00:03:01,230 --> 00:03:04,030 It's not really a recipe for popularity. 55 00:03:04,030 --> 00:03:09,310 I think even you look at the the messaging differences between Anthropic and OpenAI, and 56 00:03:09,310 --> 00:03:15,104 neither of those companies I would describe as, like, humble, but the messaging with Anthropic 57 00:03:15,104 --> 00:03:17,425 at least has the hint of restraint. 58 00:03:17,425 --> 00:03:22,465 Also, people aren't dumb, and I think sometimes I hear these messages like, there's nothing to 59 00:03:22,465 --> 00:03:22,865 fear. 60 00:03:22,865 --> 00:03:24,224 This is all gonna be fine. 61 00:03:24,224 --> 00:03:25,104 Creative destruction. 62 00:03:25,104 --> 00:03:30,709 We'll explain that to somebody who's, like, 24 year old college graduate kid works in a call 63 00:03:30,709 --> 00:03:32,870 center or in a customer support role. 64 00:03:32,870 -->

00:03:34,150 That person is on the front. 65 00:03:34,150 --> 00:03:38,069 Like, you can't really gaslight that person because they're watching this happen to them in 66 00:03:38,069 --> 00:03:38,789 real time. 67 00:03:38,789 --> 00:03:41,110 And so I think there's actually, like, two issues. 68 00:03:41,645 --> 00:03:45,324 You know, Ashley is a very talented communications professional from her pre and 69 00:03:45,324 --> 00:03:45,885 investor. 70 00:03:45,885 --> 00:03:47,485 But I think there's, like, two issues. 71 00:03:47,485 --> 00:03:51,324 One is the narrative, which is how do we talk about these changes and what they mean for 72 00:03:51,324 --> 00:03:51,645 people. 73 00:03:51,645 --> 00:03:56,650 And the other one is, like, what's the reality, which in some cases probably is hard to spin. 74 00:03:56,650 --> 00:04:01,210 And I've been spending a lot of time reading about these data center protests and these 75 00:04:01,210 --> 00:04:05,770 other ways that people are trying to find a way to have agency against AI because AI feels like 76 00:04:05,770 --> 00:04:09,364 this amorphous Leviathan that's like happening to them. 77 00:04:09,364 --> 00:04:14,164 And I think people are hungry for some way symbolic or real to feel like they're doing 78 00:04:14,164 --> 00:04:16,324 something to maybe slow this stuff down. 79 00:04:16,404 --> 00:04:21,029 And I just don't think most of the messaging I see that comes from tech companies ever asked 80 00:04:21,029 --> 00:04:25,990 the question, what would a normal human being who doesn't work in AI in a nine four x x x zip 81 00:04:25,990 --> 00:04:27,350 code think of this message? 82 00:04:27,430 --> 00:04:32,149 I do like Ashley's points throughout the piece that for these massive companies, they 83 00:04:32,149 --> 00:04:37,045 absolutely have to exist in the doomsday spiral, in the certainty that this is where 84 00:04:37,045 --> 00:04:40,485 it's headed because they are speaking directly to investors. 85 00:04:40,485 --> 00:04:45,685 They're trying to send out signal to the public markets ahead of a possible IPO before the year 86 00:04:45,685 --> 00:04:46,404 closes. 87 00:04:46,404 --> 00:04:50,310 That piece, I think, gets lost to obviously the everyday consumer. 88 00:04:50,310 --> 00:04:55,110 And then I think normal everyday startups see the behavior of the larger tech companies and 89 00:04:55,110 --> 00:04:56,789 think that they have to mirror the same stuff. 90 00:04:56,789 --> 00:04:59,269 So that's kind of how the pattern matching begins. 91 00:04:59,350 --> 00:05:03,465 Have you started to see founders try to make that narrative distinction when they come to 92 00:05:03,465 --> 00:05:04,105 pitch us? 93 00:05:04,105 --> 00:05:05,384 How does that actually look in real life? 94 00:05:05,384 --> 00:05:09,625 And is that a real advantage in attempting to walk this line to draw in attention for 95 00:05:09,625 --> 00:05:13,145 fundraising to then go off and build for the ideal customer? 96 00:05:13,145 --> 00:05:16,425 Like, can can you just do two things, basically, that are separate? 97 00:05:16,550 --> 00:05:19,029 I think the irony is Ashley's right. 98 00:05:19,029 --> 00:05:20,310 There are good stories. 99 00:05:20,310 --> 00:05:25,829 We have companies in our portfolio and others that I've met where AI is having a huge impact 100 00:05:25,829 --> 00:05:30,904 on a small business person who's able to now do a lot more than they could before through 101 00:05:30,904 --> 00:05:31,785 technology. 102 00:05:31,865 --> 00:05:37,704 There are lots of good examples of the way that this technology is making things better, and I 103 00:05:37,704 --> 00:05:41,225 don't think people have figured out how to tell those stories. 104 00:05:41,464 --> 00:05:46,670 And I also think one way people have sought to break through the noise is to make wild, 105 00:05:46,670 --> 00:05:50,110 ridiculous claims because those claims get attention on x Yeah. 106 00:05:50,110 --> 00:05:51,310 And then they get debated. 107 00:05:51,310 --> 00:05:54,750 And so I think what Ashley said is also good advice for VCs. 108 00:05:54,750 --> 00:05:59,475 Because I've always felt like, hey, if we're gonna promote our portfolio company's progress, 109 00:05:59,475 --> 00:06:00,915 the focus should be on them, not us. 110 00:06:00,915 --> 00:06:04,995 It shouldn't be, like, a three paragraph essay about we're so brilliant for having given this 111 00:06:04,995 --> 00:06:05,795 company money. 112 00:06:05,795 --> 00:06:07,555 That's about you, not about the company. 113 00:06:07,555 --> 00:06:12,819 And so I also think in general, for anybody who's trying to, like, lead a movement, shining 114 00:06:12,819 --> 00:06:14,980 a light on other people is a great way to do it. 115 00:06:14,980 --> 00:06:15,220 Yeah. 116 00:06:15,220 --> 00:06:19,139 And so I think people would be well served to listen to what Ashley's saying. 117 00:06:19,139 --> 00:06:21,939 Because I I think it'd be harder if I'm like, there are actually no good narratives. 118 00:06:21,939 --> 00:06:22,740 There's tons of them. 119 00:06:22,740 --> 00:06:24,740 They're just not organized or not told well. 120 00:06:24,740 --> 00:06:27,779 And I would say that the protagonists of those stories are heroes. 121 00:06:27,875 --> 00:06:31,955 They are people who are, like, having their lives changed through technology and that, you 122 00:06:31,955 --> 00:06:35,235 know, like, the for all the criticism of the drug companies, the drug companies understand 123 00:06:35,235 --> 00:06:35,475 that. 124 00:06:35,475 --> 00:06:39,475 If you're gonna sell a very expensive cancer drug, it sure does help to have cancer patients 125 00:06:39,475 --> 00:06:41,235 talking about how this drug saved their life. 126 00:06:41,235 --> 00:06:46,790 Ashley mentioned Apple and Nike as these glowing brands from previous times that they 127 00:06:46,790 --> 00:06:49,270 made the hero other people, not themselves. 128

00:06:49,270 --> 00:06:49,590 Yeah. 129 00:06:49,590 --> 00:06:54,069 And then kind of calls upon startups to try and do something similar, which I agree with. 130 00:06:54,069 --> 00:06:56,225 Those companies products companies. 131 00:06:56,225 --> 00:06:59,824 They're consumer heavy, and so you can touch, feel, and really relate to the products. 132 00:06:59,824 --> 00:07:04,464 Like, how do you bring that same energy if you're not a consumer start up? 133 00:07:04,464 --> 00:07:08,384 I mean, you mentioned a couple of companies that I know in our own portfolio that directly 134 00:07:08,384 --> 00:07:09,939 touch small businesses. 135 00:07:09,939 --> 00:07:13,620 You know, I look at the granola bus and billboard campaigns in San Francisco. 136 00:07:13,620 --> 00:07:17,139 I think they're trying to make granola feel like a human superpower. 137 00:07:17,139 --> 00:07:22,495 For you, I think there are other products that I've used that are trying to help people be 138 00:07:22,495 --> 00:07:26,095 more responsive to the people that they care about or to send better merch. 139 00:07:26,095 --> 00:07:29,214 I I think putting you about the hero the story, you can do it in b two b too. 140 00:07:29,214 --> 00:07:32,894 You know, I tell people, like, what is a customer case study done right other than 141 00:07:32,894 --> 00:07:36,654 making one of your customers look like a rock star for using your product? 142 00:07:36,654 --> 00:07:40,310 And I think there is this tension that you highlighted, which is I think startups are 143 00:07:40,310 --> 00:07:44,870 like, we very much wanna put our customers front and center, but we also very much wanna 144 00:07:44,870 --> 00:07:47,669 be in the prime position in that market map Mhmm. 145 00:07:47,589 --> 00:07:49,509 That, like, whatever VC is building right now. 146 00:07:49,509 --> 00:07:53,430 And being on that market map requires being loud and attracting attention to us. 147 00:07:53,805 --> 00:07:56,925 And I think attracting attention to yourself is something you can do quickly. 148 00:07:56,925 --> 00:07:59,884 Highlighting your customers takes time, attention, and care. 149 00:07:59,884 --> 00:08:03,564 And again, if you're like, I want the just add water solution, the easiest thing to do is to 150 00:08:03,564 --> 00:08:05,324 try to, like, attract attention to the company. 151 00:08:05,324 --> 00:08:08,365 I think a lot of this will happen also in, like, health care infrastructure too. 152 00:08:08,365 --> 00:08:11,250 Like, you talk to a lot of founders who are building there right now, a lot of them say the 153 00:08:11,250 --> 00:08:14,209 same message of, I'm not trying to remove specific people of the care continuum. 154 00:08:14,209 --> 00:08:17,729 I'm basically trying to make them refocus their energy and the things that require their energy 155 00:08:17,729 --> 00:08:20,289 and let them build care that's personalized. 156 00:08:20,289 --> 00:08:23,865 I want this to be almost invisible and just elevate And everyone's I think that's an 157 00:08:23,865 --> 00:08:28,264 industry where it's Well, spot on next piece is an essay from Pavel Prada at Murph Capital 158 00:08:28,264 --> 00:08:30,824 titled The Value Add LP Era. 159 00:08:30,904 --> 00:08:34,424 And it makes a compelling argument that the value add model that transformed venture 160 00:08:34,424 --> 00:08:38,620 capital twenty years ago is now playing out one layer up at the LP level. 161 00:08:38,620 --> 00:08:43,100 The court thesis is a familiar one where for decades capital was the scarce resource in 162 00:08:43,100 --> 00:08:46,139 venture, so GPs were largely passive check writers. 163 00:08:46,139 --> 00:08:50,779 But as capital got commoditized and the best founders started selecting their investors, GPs 164 00:08:50,684 --> 00:08:53,644 had to become genuinely useful to stay competitive. 165 00:08:53,644 --> 00:08:59,404 Pavel argues that that same dynamic is now unfolding for LPs because sub a $100,000,000 166 00:08:59,404 --> 00:09:03,164 emerging managers spend roughly 40% of their time on fundraising and IR alone. 167 00:09:03,529 --> 00:09:07,690 And an LP who can compress that timeline with introductions, narrative support, or 168 00:09:07,690 --> 00:09:11,769 operational help is giving a manager something more valuable than just a bigger check. 169 00:09:11,769 --> 00:09:15,210 He also makes the case that AI is flattening diligence across the board. 170 00:09:15,210 --> 00:09:19,684 And when everyone is processing the same data with the same tools, a durable edge becomes 171 00:09:19,684 --> 00:09:22,325 access and reputation, not information. 172 00:09:22,485 --> 00:09:25,524 The piece touches on the same conclusion Venture reached twenty years ago. 173 00:09:25,524 --> 00:09:30,245 The allocators who win are the ones that GPs are calling before they're in market, not 174 00:09:30,245 --> 00:09:33,620 because they have better models, but because they've actually been helpful. 175 00:09:33,700 --> 00:09:38,980 His core parallel is that LPs are roughly where VCs were in 2005, right when folks showcased 176 00:09:38,980 --> 00:09:43,299 other structures and offerings that made the passive check writer model irrelevant. 177 00:09:43,299 --> 00:09:44,980 Do you think that that analogy holds up? 178 00:09:45,324 --> 00:09:50,044 And do you think most LPs are actually equipped and structured to deliver, quote, unquote, real 179 00:09:50,044 --> 00:09:53,164 value to their GPs portfolios or GPs themselves? 180 00:09:53,164 --> 00:09:53,725 It's interesting. 181 00:09:53,725 --> 00:09:56,125 I think there are some value add LPs. 182 00:09:56,125 --> 00:09:57,245 I will say this. 183 00:09:57,324 --> 00:10:03,190 There is a dynamic where getting into particularly new hot competitive funds is hard. 184 00:10:03,269 --> 00:10:09,269 And last year was the first year I had some of our LPs call me and say, can you put in a good 185 00:10:09,269 -->

00:10:10,709 word with this GP? 186 00:10:10,709 --> 00:10:11,509 I was like, wow. 187 00:10:11,509 --> 00:10:13,029 You must really wanna be in their fund. 188 00:10:14,465 --> 00:10:16,225 And of course, was happy to do it. 189 00:10:16,225 --> 00:10:20,305 I think the difference is LPs and GPs actually do live in different worlds. 190 00:10:20,305 --> 00:10:26,545 One of the things I'm consistently surprised by is how much more one of my favorite LPs is is, 191 00:10:26,545 --> 00:10:28,319 like, we don't hunt in packs the way you do. 192 00:10:28,319 --> 00:10:32,159 If you're a GP, you have other GPs that you like co investing with that you're on boards 193 00:10:32,159 --> 00:10:32,399 with. 194 00:10:32,399 --> 00:10:36,879 Like, there's a lot of this, like, interaction among GPs that's just part of our job. 195 00:10:36,879 --> 00:10:40,000 And if it isn't happening, we find ways to manufacture it and make it happen. 196 00:10:40,125 --> 00:10:44,125 And when I talk to my friends on the LP side, they're just I I'll I'll meet two allocators 197 00:10:44,125 --> 00:10:46,845 that both work for foundations in the same city. 198 00:10:46,924 --> 00:10:48,605 And I'm like, well, you guys must hang out. 199 00:10:48,605 --> 00:10:49,485 They're like, no. 200 00:10:49,485 --> 00:10:49,725 How? 201 00:10:49,725 --> 00:10:50,845 They're like, we just don't. 202 00:10:50,845 --> 00:10:53,789 And so I think the nature of the work is different. 203 00:10:53,789 --> 00:10:57,230 Also, think the things that are helpful as a Jeep, at least from my perspective, things that 204 00:10:57,230 --> 00:10:58,429 LPs can do are helpful. 205 00:10:58,429 --> 00:11:02,990 One, help you see things about your own pitch story or organization that are getting in the 206 00:11:02,990 --> 00:11:05,549 way of other LPs saying yes that maybe you don't see. 207 00:11:05,549 --> 00:11:09,455 In the same way that a good VC can look at a start pitch deck and say, let me tell you why 208 00:11:09,455 --> 00:11:10,414 this deck isn't working. 209 00:11:10,414 --> 00:11:15,615 In the same way with VC, there are a few very high signal LPs where if you get them, it's a 210 00:11:15,615 --> 00:11:19,294 signal to other people that like, oh, those people see everything and have a good have good 211 00:11:19,294 --> 00:11:20,414 judgment if you have them. 212 00:11:20,414 --> 00:11:21,134 It's great. 213 00:11:21,134 --> 00:11:26,500 And I think good LPs really help you think through future of the firm, organize like, big 214 00:11:26,500 --> 00:11:27,620 strategic decisions. 215 00:11:27,700 --> 00:11:28,500 They really can. 216 00:11:28,580 --> 00:11:32,259 But I read this post, I was like, I really want the world to be this way. 217 00:11:32,259 --> 00:11:36,500 I'm not entirely sure that it will be that way on average for every GP. 218 00:11:36,745 --> 00:11:41,065 And I think who's gonna benefit from this ironically is gonna be just like in startups. 219 00:11:41,065 --> 00:11:47,144 The premium tier, most highly sought after managers are going to be able to ask harder 220 00:11:47,144 --> 00:11:48,665 questions of LPs. 221 00:11:48,665 --> 00:11:51,705 You know, one thing that would be hugely value add is, why don't you just agree to do my next 222 00:11:51,705 --> 00:11:52,105 three funds? 223 00:11:52,250 --> 00:11:53,209 Agree to do it today. 224 00:11:53,209 --> 00:11:55,450 That would be a huge value add for the GP. 225 00:11:55,450 --> 00:11:55,690 Yeah. 226 00:11:55,690 --> 00:12:00,009 Because now you know you've got this person locked in, and I don't think we will see the 227 00:12:00,009 --> 00:12:06,464 same level of frenzied competition by LPs to get into funds in the same way that we've seen 228 00:12:06,464 --> 00:12:09,264 GPs compete to get into the hottest startup names. 229 00:12:09,264 --> 00:12:13,345 That was a thought that I had that I wanted to push back on because the FOMO concept 230 00:12:13,345 --> 00:12:14,625 materializes different. 231 00:12:14,625 --> 00:12:20,450 For LPs, like, there are not as many cons oversubscribing a fund that there are in 232 00:12:20,450 --> 00:12:21,970 oversubscribing around. 233 00:12:21,970 --> 00:12:23,490 Like, there's just more fees. 234 00:12:23,490 --> 00:12:25,730 Like, for founders, there's dilution risk. 235 00:12:25,730 --> 00:12:28,129 There's all these other things that you can kind of basket in. 236 00:12:28,129 --> 00:12:29,649 So is that kind of where you're coming from? 237 00:12:29,649 --> 00:12:31,725 Like, the full class is structurally different. 238 00:12:31,725 --> 00:12:36,925 I I think also, like venture, you know, a big part of the reason we have this value add is 239 00:12:36,925 --> 00:12:42,125 Andreessen sort of came in and raised the expectations across the industry of, like, what 240 00:12:42,125 --> 00:12:45,690 you should get from your VC, but not to get all MBA. 241 00:12:45,690 --> 00:12:46,970 That's, like, a good challenger strategy. 242 00:12:46,970 --> 00:12:50,649 Like, if everybody else isn't doing this and I'm a new brand, how do I differentiate myself? 243 00:12:50,649 --> 00:12:54,250 Mean, candidly, when Screentor got started, I think there were some ideas about there are 244 00:12:54,250 --> 00:12:59,304 some things we could do as a as an LP that weren't being done in the same way, 245 00:12:59,304 --> 00:13:03,945 predominantly mostly, like, having more GP involvement in the decision making and review 246 00:13:03,945 --> 00:13:08,345 of prospective managers, and also trying to foster a community on the back end that I think 247 00:13:08,345 --> 00:13:10,424 are valuable and are different than what other LPs do. 248 00:13:10,580 --> 00:13:15,059 And so I do think that, like, there are some people I've met, I won't name them because 249 00:13:15,059 --> 00:13:20,419 they're they're rather private, who are legitimately raising the bar of what GPs can 250 00:13:20,419 --> 00:13:21,860 expect from their LPs. 251

00:13:21,860 --> 00:13:22,100 Okay. 252 00:13:22,100 --> 00:13:22,659 I need one person. 253 00:13:22,754 --> 00:13:27,955 For me, like, the team at Virtus has raised my expectations bar for what a really supportive, 254 00:13:27,955 --> 00:13:31,794 helpful, good LP can do to help make your life better as a GP. 255 00:13:31,794 --> 00:13:36,274 In the same way as a founder, not everything that a GP or a board member does to help your 256 00:13:36,274 --> 00:13:37,919 life, is a strategy thing. 257 00:13:37,919 --> 00:13:40,480 Sometimes it's just like taking you out to dinner and letting you vent. 258 00:13:40,559 --> 00:13:44,399 Sometimes it's helping you see something that you don't wanna see, but like doing it in a way 259 00:13:44,399 --> 00:13:48,480 that gives you like, it's not all these, we've closed the candidate for you or we like 260 00:13:48,480 --> 00:13:49,600 retweeted your blog post. 261 00:13:49,600 --> 00:13:50,720 It's not always those things. 262 00:13:51,154 --> 00:13:55,475 Anything else that you feel like from a GP perspective would genuinely add value from an 263 00:13:55,475 --> 00:13:57,315 LP that might be different from people who 264 00:13:57,315 --> 00:13:57,794 would expect? 265 00:13:57,875 --> 00:14:02,035 One, at least in my observation, one fundamental difference. 266 00:14:02,035 --> 00:14:07,899 A really well networked GP can always get you access to capital that you don't have. 267 00:14:07,899 --> 00:14:11,419 They they will always be able to find someone in their network who doesn't know you who will 268 00:14:11,419 --> 00:14:12,459 invest in their company. 269 00:14:12,459 --> 00:14:18,475 I have found there are relatively few LPs who can make direct intros to other allocators who 270 00:14:18,475 --> 00:14:19,915 will then follow their lead. 271 00:14:19,915 --> 00:14:21,195 Again, because their business isn't 272 00:14:21,434 --> 00:14:23,035 Each strategy is completely different. 273 00:14:23,035 --> 00:14:23,274 Yeah. 274 00:14:23,274 --> 00:14:28,075 And if you think about it, if you're an LP in a fund, if you're on the LPAQ, maybe see the 275 00:14:28,075 --> 00:14:32,590 other big investors couple times a year, and then you see them at the AGM. 276 00:14:32,590 --> 00:14:34,509 So maybe you get two or three touch points. 277 00:14:34,509 --> 00:14:38,190 And a company where I'm really involved, I'm talking to my co investors at least once a 278 00:14:38,190 --> 00:14:38,429 month. 279 00:14:38,429 --> 00:14:40,350 It's just a different rhythm and a different intensity. 280 00:14:40,350 --> 00:14:44,750 Well, our last piece of the week is a LinkedIn post from our friend Jenny Fielding at 281 00:14:44,750 --> 00:14:45,470 Everywhere Ventures. 282 00:14:45,815 --> 00:14:49,495 In the post, Jenny is making the case that we are firmly back in the era of what Paul Graham 283 00:14:49,495 --> 00:14:51,975 originally called high resolution fundraising. 284 00:14:51,975 --> 00:14:56,134 The idea that instead of raising one large round all at once, founders raise capital in 285 00:14:56,134 --> 00:14:59,254 smaller tranches as they hit milestones and generate momentum. 286 00:14:59,254 --> 00:15:03,440 We saw this approach explode during the pandemic when founders were stacking safes in 287 00:15:03,440 --> 00:15:07,600 real time and then watched it kind of fall out of fashion when the market corrected in 2022 288 00:15:07,600 --> 00:15:10,000 and investors demanded a little bit more structure. 289 00:15:10,000 --> 00:15:13,679 But back in today's age, Jenny argues the pendulum has fully swung back. 290 00:15:13,924 --> 00:15:18,324 And in an AI driven world where a two person team can build a feature, sign a pilot, and 291 00:15:18,324 --> 00:15:22,324 increase their company's value in the time it takes a traditional VC to begin their standard 292 00:15:22,324 --> 00:15:25,924 diligence process, agile funding just might make more sense. 293 00:15:25,924 --> 00:15:30,259 She does flag that the approach comes with real risks, including messy cap tables and safe 294 00:15:30,259 --> 00:15:33,059 stacks that can create almost like debt sandwiches down the road. 295 00:15:33,059 --> 00:15:37,379 But our bottom line is that if you have the data, the customers, and the velocity, you may 296 00:15:37,379 --> 00:15:40,420 not need to wait for a lead investor to give you permission to grow. 297 00:15:40,500 --> 00:15:43,975 I wanted to hear your perspective on this type of fundraising because I think we've seen it 298 00:15:43,975 --> 00:15:46,215 play out in so many different ways here. 299 00:15:46,215 --> 00:15:50,294 More specifically, are there specific tells that indicate that a founder or a company is a 300 00:15:50,294 --> 00:15:54,950 strong candidate to approach capital raising in that more agile manner than others. 301 00:15:55,190 --> 00:15:55,910 Yes. 302 00:15:55,910 --> 00:15:58,629 I'm seeing this in full force again at YC. 303 00:15:58,629 --> 00:16:01,750 And in some cases, I'm like, what's the point? 304 00:16:01,750 --> 00:16:02,149 Okay. 305 00:16:02,149 --> 00:16:03,430 You raised at eight. 306 00:16:03,430 --> 00:16:06,389 Two weeks later, you wanna raise a $100 at ten. 307 00:16:06,389 --> 00:16:09,029 You're saving 25 bps of dilution. 308 00:16:09,365 --> 00:16:10,964 Is it really that important? 309 00:16:10,964 --> 00:16:13,044 To either one of us, is it that important? 310 00:16:13,044 --> 00:16:17,605 The thing I found is that you end up with this very weird cap table with, like, 17 safes all 311 00:16:17,605 --> 00:16:18,565 with different caps. 312 00:16:18,565 --> 00:16:22,725 And if you think it's hard for founders to keep track of a bunch of safes with a single cap, 313 00:16:22,725 --> 00:16:23,365 it's really hard. 314 00:16:23,690 --> 00:16:26,809 And then you get in this to this question of, like, well, what matters if someone's like, 315 00:16:26,809 --> 00:16:30,889 well, we signed a pilot deal with this company,

so I wanna raise a higher valuation. 316 00:16:30,889 --> 00:16:32,009 I'm like, pilot? 317 00:16:32,009 --> 00:16:33,370 What does that what does that even mean? 318 00:16:33,370 --> 00:16:34,250 What are you even talking about? 319 00:16:34,250 --> 00:16:38,795 And so I think it comes down to we are in a world, I think, with AI where there's a lot of 320 00:16:39,035 --> 00:16:42,075 I think every time this happens, it's almost always because of FOMO. 321 00:16:42,075 --> 00:16:46,235 It's always investors feeling like, if I don't get into this thing, it's gonna run away from 322 00:16:46,235 --> 00:16:47,835 me, I'm never gonna catch it again. 323 00:16:47,835 --> 00:16:51,759 And so if I have to pay this escalating stair step thing, I'll do it. 324 00:16:51,759 --> 00:16:55,679 And I think in the end, for most founders, I actually think it's the wrong idea, but I will 325 00:16:55,679 --> 00:16:56,800 not win that argument. 326 00:16:56,879 --> 00:17:00,240 And so I think I've seen some companies where, like, the step up is, like, quite meaningful. 327 00:17:00,240 --> 00:17:04,640 Like, I've seen y comedy companies where the valuation doubles after demo day, and, like, 328 00:17:04,634 --> 00:17:06,315 I'm not entirely sure, like, why. 329 00:17:06,315 --> 00:17:09,914 Other than the only way this works is if you as the founder have the leverage to say this is 330 00:17:09,914 --> 00:17:12,234 the price, and you will either pay it or I won't include you. 331 00:17:12,234 --> 00:17:14,075 And most founders don't have that leverage. 332 00:17:14,075 --> 00:17:14,795 Some do. 333 00:17:14,795 --> 00:17:17,914 And I think the ones who do have it use it, and they use it aggressively. 334 00:17:18,349 --> 00:17:23,070 I mean, whole premise of making it successful is based on the assumption that there will be 335 00:17:23,070 --> 00:17:28,349 continuous interest on your company, and it will grow in a period of time that you can 336 00:17:28,349 --> 00:17:28,910 forecast. 337 00:17:28,910 --> 00:17:32,190 Because if you miss out on any part of that interest in the next, like, four to five 338 00:17:32,190 --> 00:17:36,474 months, your smaller raise that you did now falls apart, and you have less swings at the 339 00:17:36,474 --> 00:17:37,275 bat to do so. 340 00:17:37,275 --> 00:17:42,075 So you almost especially in today's age too, where in two, three months, not just your 341 00:17:42,075 --> 00:17:46,634 features have this opportunity to change, but the competitive landscape shifts and changes as 342 00:17:46,634 --> 00:17:46,875 well. 343 00:17:46,875 --> 00:17:50,529 So that's why I feel like, oh, this feels like agile funding in today's market is gonna look a 344 00:17:50,529 --> 00:17:51,970 lot different than in 2020 Oh, yeah. 345 00:17:52,049 --> 00:17:52,450 One. 346 00:17:52,450 --> 00:17:54,130 It feels to me like gas prices. 347 00:17:54,130 --> 00:17:56,289 They go up a lot faster than they come down. 348 00:17:56,289 --> 00:18:00,289

And it's not like, oh, we missed our last two milestones, so we're gonna give you a break. 349 00:18:00,289 --> 00:18:00,609 No. 350 00:18:00,609 --> 00:18:01,649 That doesn't happen. 351 00:18:01,649 --> 00:18:07,525 So I think this is always, to me a sign of a heavily FOMO induced market when people are 352 00:18:07,525 --> 00:18:13,285 willing to pay dramatically higher prices for the same asset when relatively little has 353 00:18:13,285 --> 00:18:13,845 changed. 354 00:18:13,924 --> 00:18:18,440 And so I think right now, again, people who are looking at investing in AI companies are more 355 00:18:18,440 --> 00:18:21,960 afraid of not getting in than they are of overpaying, and that's why you're getting some 356 00:18:21,960 --> 00:18:23,160 of this behavior that you're getting. 357 00:18:23,160 --> 00:18:28,839 When founders give you a reason as to, like, why they're raising a smaller round and one of 358 00:18:28,839 --> 00:18:34,454 the reasons being they wanna protect on their delusion, how do you absorb that response? 359 00:18:34,615 --> 00:18:35,974 Because in my brain, I'm like, of course. 360 00:18:35,974 --> 00:18:39,095 Like, of course, I know that that's something that you think of, but I that certainly cannot 361 00:18:39,095 --> 00:18:41,894 be the driving reason as to why you're raising a smaller round. 362 00:18:41,894 --> 00:18:43,174 It just, like, doesn't work for me. 363 00:18:43,174 --> 00:18:47,720 I think continuous fundraising is also You're, like, constantly talking to people, and you're 364 00:18:47,720 --> 00:18:49,000 constantly and it breaks. 365 00:18:49,000 --> 00:18:52,679 No founder I know is, oh, the peak operating efficiency of my company was at the middle of 366 00:18:52,679 --> 00:18:53,240 my fundraise. 367 00:18:53,240 --> 00:18:54,039 No one says that. 368 00:18:54,039 --> 00:18:57,799 So I think the one nice thing about these sort of more modular fundraisers where you raise all 369 00:18:57,799 --> 00:19:01,464 the money at once is they have a discrete beginning and end, you and get to get back to 370 00:19:01,464 --> 00:19:01,704 work. 371 00:19:01,704 --> 00:19:05,864 And this continuous fundraising or high resolution thing, you just end up fundraising 372 00:19:06,024 --> 00:19:08,104 longer but at a lower intensity. 373 00:19:08,105 --> 00:19:12,105 I oftentimes ask people, like, why is the thing that we're talking about a significant 374 00:19:12,105 --> 00:19:13,144 milestone or change? 375 00:19:13,539 --> 00:19:17,539 And the real risk with with raising these little increments is that the next time you go 376 00:19:17,539 --> 00:19:21,140 out, whatever progress you've made will be insufficient to garner more interest. 377 00:19:21,140 --> 00:19:25,140 And right now, have people's time, attention, interest, so why not capitalize on that and get 378 00:19:25,140 --> 00:19:29,595 the amount of money you need plus a cushion to get to the next milestone versus, like, trying 379 00:19:29,595 --> 00:19:32,634 to be, like, we're raise $2.50, then we're gonna, like, close this customer and raise 380 00:19:32,634 --> 00:19:33,275 another $2.50. 381 00:19:33,275 --> 00:19:33,914 I'm like, okay. 382 00:19:33,914 --> 00:19:38,474 Like, you're introducing a lot of financing risk to the business by doing it this way. 383 00:19:38,554 --> 00:19:45,160 And I think, in general, my view is, like, the savings in dilution to me are not oftentimes 384 00:19:45,160 --> 00:19:49,559 worth it relative to the financing risk we're introducing to the company. 385 00:19:49,559 --> 00:19:50,839 We are all out of time today. 386 00:19:50,839 --> 00:19:51,880 Thank you, Charles, for hopping in. 387 00:19:51,880 --> 00:19:53,880 Thank you to our listeners for jumping in as well. 388 00:19:53,880 --> 00:19:56,340 Please like and subscribe, and we will talk to you all next week. 389 00:19:56,340 --> 00:19:56,980 Thank you. 390 00:19:56,980 --> 00:19:57,381 Bye.