The Exchanges

Q I think one for me that I always find striking is that capital concentration on a per company basis. How do you think about bluntly how to get as much cash into the winners as possible? And what does that reinvestment decision making look like for like, do we really fucking double down or do we Let the capital market support it, and we play a nice role.

A Yeah, look, for us, every investment decision that we make is a new, fresh decision. In the venture world, like, you probably think a lot about reserves. Like, we don't explicitly reserve per deal, but we do keep a pool of capital in reserve for the best performing companies when we want to double or triple down. And so, you know, we've invested multiple times in many of our companies. So Coinbase, we invested three times. Roblox, twice. Databricks, three times. Stripe, four times. TripActions, four times. Every time we assess one of those new investments, we do it with fresh eyes. And so we call it re-underwriting, re-underwrite, and we think about, you know, what are the scenarios where we make our returns and target five X or so? And what is the scenario where we can still see that upside?

AI assessment note: “we do keep a pool of capital in reserve for the best performing companies”

Q said to me that I had to start with a show that we did with Everett Randall, and Everett Randall said on the show, That you cannot look LPs in the face and tell them you'll do a five X with the fund sizes you have. How do you think about responding to the notion that one can't say to that LPs you'll do a five X with large funds?

A Uh, well, Harry, it is great to be back with you. I love, I love hanging out with you, so I'm glad, I'm glad we're diving right in. Yeah, as it relates to fund sizes, so our funds consistently beat small, large, Diversified, concentrated venture funds. So our larger funds have outperformed our smaller ones, and our larger ones actually have similar multiples of money to our smaller ones, uh, across, across strategies. So I would start by just saying this. In venture, we have two customers. We've got the LPs, And we have founders. On the LP side, money is going to flow to where the highest returns and best, worst reward are. And, and so I think our fund sizes are a reflection of that. Our best performing fund in the history of the firm is actually a one billion dollar fund. So it's a large fund, right? In that fund, Databricks has returned seven X the fund so far. Coinbase has returned already DPI five X of the fund. In that fund, we also had GitHub, DigitalOcean, uh, Lyft, and many other things. So to me, you can kind of see it in the data in our returns already. It's about the number of winners you capture. Uh, and if the big ones are great, that can really work out. Um, so I think the idea that large funds can't have great returns is just not true in our experience. So private markets have changed. Tech waves create bigger opportunities. So let me just talk about each. The pr…

AI assessment note: “the idea that large funds can't have great returns is just not true”

Q Is there anything else that you think is complete bullshit or that people don't see about the expansion of private markets and the opportunity that's opened up Full fund sizes like yours with this extension?

A I think the biggest thing that's missing is just the change in what that means for asset classes. So it used to be that you could get access to great companies in the public markets that are small cap. It turns out that's fewer and further between now. So we just did, uh, an analysis on this. I mean, it turns out that the number of public companies has been cut in half over the last 20 years. Uh, you know, the companies that we're talking about, you know, many, many of them would already be in the public markets and they're not. Uh, and so, you know, if you look at where the returns are getting generated, the returns are actually getting generated in the private markets before they go to the public markets. And now if you look at what remains in small cap land in the public markets, You know, there are definitely some high, high quality companies, but the quality has deteriorated. A friend of mine just shared this analysis with me that, that showed the return on invested capital of the Russell 2500, uh, over the last 30 years. And if you look at the ROIC, which to me is like the easiest measure of the quality of the company, the ROIC of the Russell 2500 over the last 30 years, it's gone from seven and a half percent steadily down to three percent. So like more than cut in half. Uh, and so, and that's a pretty steady decline. I mean, it ebbs and flows with economic cycles. So I …

AI assessment note: “I think the biggest thing that's missing is just the change in what that means”

Q Is there anything else that you think is complete bullshit or that people don't see about the expansion of private markets and the opportunity that's opened up Full fund sizes like yours with this extension?

A I think the biggest thing that's missing is just the change in what that means for asset classes. So it used to be that you could get access to great companies in the public markets that are small cap. It turns out that's fewer and further between now. So we just did, uh, an analysis on this. I mean, it turns out that the number of public companies has been cut in half over the last 20 years. Uh, you know, the companies that we're talking about, you know, many, many of them would already be in the public markets and they're not. Uh, and so, you know, if you look at where the returns are getting generated, the returns are actually getting generated in the private markets before they go to the public markets. And now if you look at what remains in small cap land in the public markets, You know, there are definitely some high, high quality companies, but the quality has deteriorated. A friend of mine just shared this analysis with me that, that showed the return on invested capital of the Russell 2500, uh, over the last 30 years. And if you look at the ROIC, which to me is like the easiest measure of the quality of the company, the ROIC of the Russell 2500 over the last 30 years, it's gone from seven and a half percent steadily down to three percent. So like more than cut in half. Uh, and so, and that's a pretty steady decline. I mean, it ebbs and flows with economic cycles. So I …

AI assessment note: “the biggest thing that's missing is just the change in what that means for asset classes”

Q One thing that I do worry about when we look at this stage of the market, especially when it comes to this price is that we're like taking venture risk in terms of probability stage of company, but at prices that were previously very, very mature companies. How do you respond and think about that? Taking venture risk at super high mature company prices?

A I think there are certain instances where it makes sense. I mean, I, I would agree with you that there are many instances in the market where that doesn't make sense. Uh, I think there are certain instances where some degree of likelihood of success is very, very, very high, despite, despite, you know, a very early stage. And so, you know, as an example, you know, my partner, Sarah, um, led around a character AI and, you know, it was extremely early stage and, You know, we, we invested at a, you know, what you would call a gross stage price. Um, but we knew that the likelihood of some degree of success in backing Nome was extremely high. And so, you know, it worked out that way. And so for, for extremely, extremely special people like that, uh, you know, we're, we're comfortable to step into those situations.

AI assessment note: “I think there are certain instances where it makes sense.”

Q Can you just tell me on the 50 and 15? 50 is follow on, but 15 is what? Follow on of a different kind?

A Of a, of an originated growth fund investment. So the thing that's important about that is, you know, when we invest, I don't know, two thirds of the time or so, it's into a company that we have a preexisting relationship with, either at the early stage or the growth fund. So the 50 is, you know, we, we did the 11 labs Growth round, and we, and, you know, thankfully, Jennifer and Brian did the, the early stage round. Uh, the 15 would be, we led two more rounds in flock safety, or, you know, we led another round, um, you know, into Figma, or, uh, you know, we, we put more money into SpaceX. So something that was originated, you know, or Waymo, something that we originally did out of the growth fund.

AI assessment note: “Of a, of an originated growth fund investment.”

Q and the revenue scaling, dude, is just so much faster than any of us have ever seen before. We see the race to a hundred million ARR. I think you guys just did, um, Gamma, which is a product that, awesome product, um, Grant, scaled very fast to a hundred million. Does revenue mean as much as it used to when it's gained so quickly and also seems so transient?

A Okay, so this is a great question, because I think this is where you have to be really discerning in the market. It does mean the same as it has before, if It is high retention and high engagement. And so this is the, the bar has actually gone up significantly for us when we look at AI companies because it grown so fast. And so you can't actually look at years of renewal behavior, but you can look at shorter cycles of retention and you most importantly can look at engagement. And so if people are using the product a lot and getting a lot of value out of it, that's a really good leading indicator and we can take comfort in that, but we have spent way more time focused on that. Than we did, you know, in the previous generation. It's, it's so, what makes companies like Gamma so special? Again, this is one of Sarah's deals. Um, you know, one, heavily organic customer acquisition, and two, really high engagement and retention. And so, you know, we talked about the engagement and retention piece. It's magic when you have, you know, ease of customer acquisition. You and I have talked about this before, but You know, this is one of the most impressive things that we're seeing in the AI companies. 11 Labs has this, ChatGPT has this, XAI has this, uh, where it's organic customer acquisition, uh, or, you know, very low cost sales acquisition, Abridge, Harvey, companies where, like, the ma…

AI assessment note: “It does mean the same as it has before, if It is high retention”

Q I believe that kingmaking does exist, and kingmaking, for those that don't know, is when a financier is able to bluntly invest so much that they are unable, able to anoint a winner in a category, and that then leads to moats and everything that comes with it and ultimately winning. Do you believe that kingmaking exists, or do you disagree that it exists?

A As we think about investing in companies, so we always seek to invest in the winner. Uh, if the investment thesis is our investment is going to make them a winner, it's probably a pretty flimsy investment thesis. Now, an investment that we make in a company that is already attracting resources, hiring really well, able to raise capital well, um, able to deploy more money into go to market, able to deploy more money into R&D, It can, it can generally help. Like, this is the whole theory of preferential attachment, which is, you know, why increasing returns to scale is a concept, right? Even if you're not a network effect driven business, if you're salesforce.com or, you know, Workday or ServiceNow or CrowdStrike, the more you become the leader, the more resources come your way, and the easier things get for you, potentially. Uh, and so we look for situations like that. I would contrast it with situations You know, like, the original SoftBank Vision Fund did a lot of really good things. Honestly, they, they did a bunch of really good things, and...

AI assessment note: “if the investment thesis is our investment is going to make them a winner, it's probably a pretty flimsy”

Q Can I ask you, what decision did you and Mark and Ben most disagree on? And, and what was the outcome? What, where were your views just very divergent, and how did that resolve itself?

A The biggest one was our original investment in Waymo. So we invested in Waymo in early 2020. So we were the only VC find that invested in Waymo in, in, in early 2020. It was extraordinary. I mean, the product was magic even at the time. Like, we, you know, we did demo rides. This was obviously well before, uh, they, they were, they were, uh, everywhere on the road. We did demo rides. You know, it could do, it could drive smoother than a human. They could do unprotected laughs. Uh, they, they could avoid constructions. I think they, they could do all these like really special things that you wouldn't think that an autonomous car could do at the time. Um, but at the time, like they didn't have a product in the market and I thought the valuation was, was really high. Uh, and so, you know, I, I said, here's all this analysis in our team. And, you know, we produced those analysis that showed that, you know, the price was really high and, uh, Mark, Mark and Ben, you know, we're like, it's autonomous driving. Like, what are you talking about? Like, this is the, this is the, this is the endless market size. Um, you know, this, this can be the biggest company in consumer technology. And so, and they're the market leader. And the way we did it was we, you know, we invested a smaller amount at the time, just given we were conflicting points of view on it. Um, but that served us well becau…

AI assessment note: “The biggest one was our original investment in Waymo.”

Q Well, thank you so much. I still can't believe I actually get paid to talk to people like you, so it's a pretty crazy life, but I do want to start with some context. So tell me, how did you make your way into the world of venture and come to be leading Andreessen's growth fund today?

A Yeah, so look, I grew up in Kentucky, very far away from the world of finance and technology. I was very fortunate. I had an awesome upbringing. My parents, I had an older brother. Went to college at Notre Dame thinking I was going to be a lawyer. Thankfully, I went into the finance industry out of school instead. Eventually, I moved to San Francisco in 2008, where I started to, you know, first encounter the world of tech, and I joined General Atlantic about 10 years ago. At GA, I had the chance to invest in some amazing companies. Spent about seven years there. Companies like CrowdStrike, Uber, Airbnb, Opendoor, Slack, and then some others that are a little bit lesser known, but really awesome companies like Benavity and Seismic. I came over to A-X-T-Z to start and run our new growth fund about two and a half years ago. Initially got to know some of the folks at the firm just from some overlapping investments that we had. So I think I knew Alex Rampell the best because we had invested together in Opendoor. And fast forward to now, we're investing from our second growth fund here. Had the chance to build a A great team inside the firm and work with some awesome founders and companies here as well.

AI assessment note: “came over to A-X-T-Z to start and run our new growth fund”

Q Well, thank you so much. I still can't believe I actually get paid to talk to people like you, so it's a pretty crazy life, but I do want to start with some context. So tell me, how did you make your way into the world of venture and come to be leading Andreessen's growth fund today?

A Yeah, so look, I grew up in Kentucky, very far away from the world of finance and technology. I was very fortunate. I had an awesome upbringing. My parents, I had an older brother. Went to college at Notre Dame thinking I was going to be a lawyer. Thankfully, I went into the finance industry out of school instead. Eventually, I moved to San Francisco in 2008, where I started to, you know, first encounter the world of tech, and I joined General Atlantic about 10 years ago. At GA, I had the chance to invest in some amazing companies. Spent about seven years there. Companies like CrowdStrike, Uber, Airbnb, Opendoor, Slack, and then some others that are a little bit lesser known, but really awesome companies like Benavity and Seismic. I came over to A-X-T-Z to start and run our new growth fund about two and a half years ago. Initially got to know some of the folks at the firm just from some overlapping investments that we had. So I think I knew Alex Rampell the best because we had invested together in Opendoor. And fast forward to now, we're investing from our second growth fund here. Had the chance to build a A great team inside the firm and work with some awesome founders and companies here as well.

AI assessment note: “I came over to A-X-T-Z to start and run our new growth fund”

Q Like what? I genuinely want to be educated here, because I, I immediately shivered.

A They were early to figuring out that there would be a huge opportunity in AI. So, you know, they famously were in NVIDIA in, in that fund, uh, you know, and they did some really good investments, like Slack, like Garnet. Um, the, the one piece of it was missing, in my opinion, was that Capital as a weapon was a viable strategy. So capital as a weapon in enterprise is really, really hard to do because you physically have to hire people. You have to hire sales reps. You have to hire marketing people, et cetera. Capital as a weapon in consumer, most of the time it's, it doesn't really work. Like I would say TikTok is maybe the exception, maybe Uber. Um, but you know, the thing that, that maybe was wrong about it was We can king make if we just put the capital into the companies and then that will allow them to win. But that's a bit of an adverse selection machine where the companies that opt into that as their winning strategy are the ones that maybe don't have as good of a reason to win or competitive advantage in the first place. And so if that money is going to go, you know, back to consumers or drivers or whatever it is, uh, in that case, and just get funneled back to Google and Facebook, like, I don't think that king making for that is necessarily a good strategy. Um, but, you know, investing a lot of capital, having a brand that gives a seal of approval, it can definitely he…

AI assessment note: “they did some really good investments, like Slack, like Garnet.”

Q Love that. I, I spoke to Brian Kim on your team, and he asked me, do you see as part of the growth funds charter to fix the errors of omission from your venture team?

A Very much so. And, but we do it in partnership with the early stage team. So this is, this is like our whole model, right? Um, you know, we talk about mistakes we make all the time and we have some very, I have very painful errors of omission at the growth stage too. I think if you think about what our business is, we're never going to have at the early stage, a hundred percent market share of all the best deals. And so, you know, by having a growth fund, we can come later and And, you know, we, we call it like the fix the mistake fun internally when we're joking around. Uh, but we do that in close partnership with our early stage team. So we always join team meetings. We're always talking to each other. You know, what, what do you, you know, asking the early stage team, like, Hey, what series A's do you wish you had done that you passed on? You know, which seeds do you feel like you passed on? And so when you have a situation like what you described with Maddie and you say, you know, you're pulling your hair out that you, that you didn't do the seed, you know, that's okay. Come back and, you know, come back and fix the mistake at the B or the C. Uh, and so it's a huge part of our charter. By the numbers, about half of what we do is follow-ons from existing venture companies. And then, um, from a dollar standpoint, another 15% is follow-ons from existing growth stage companies.…

AI assessment note: “Very much so. And, but we do it in partnership with the early stage team.”

Q One thing that I do worry about when we look at this stage of the market, especially when it comes to this price is that we're like taking venture risk in terms of probability stage of company, but at prices that were previously very, very mature companies. How do you respond and think about that? Taking venture risk at super high mature company prices?

A I think there are certain instances where it makes sense. I mean, I, I would agree with you that there are many instances in the market where that doesn't make sense. Uh, I think there are certain instances where some degree of likelihood of success is very, very, very high, despite, despite, you know, a very early stage. And so, you know, as an example, you know, my partner, Sarah, um, led around a character AI and, you know, it was extremely early stage and, You know, we, we invested at a, you know, what you would call a gross stage price. Um, but we knew that the likelihood of some degree of success in backing Nome was extremely high. And so, you know, it worked out that way. And so for, for extremely, extremely special people like that, uh, you know, we're, we're comfortable to step into those situations.

AI assessment note: “I think there are certain instances where it makes sense.”

Q and the revenue scaling, dude, is just so much faster than any of us have ever seen before. We see the race to a hundred million ARR. I think you guys just did, um, Gamma, which is a product that, awesome product, um, Grant, scaled very fast to a hundred million. Does revenue mean as much as it used to when it's gained so quickly and also seems so transient?

A Okay, so this is a great question, because I think this is where you have to be really discerning in the market. It does mean the same as it has before, if It is high retention and high engagement. And so this is the, the bar has actually gone up significantly for us when we look at AI companies because it grown so fast. And so you can't actually look at years of renewal behavior, but you can look at shorter cycles of retention and you most importantly can look at engagement. And so if people are using the product a lot and getting a lot of value out of it, that's a really good leading indicator and we can take comfort in that, but we have spent way more time focused on that. Than we did, you know, in the previous generation. It's, it's so, what makes companies like Gamma so special? Again, this is one of Sarah's deals. Um, you know, one, heavily organic customer acquisition, and two, really high engagement and retention. And so, you know, we talked about the engagement and retention piece. It's magic when you have, you know, ease of customer acquisition. You and I have talked about this before, but You know, this is one of the most impressive things that we're seeing in the AI companies. 11 Labs has this, ChatGPT has this, XAI has this, uh, where it's organic customer acquisition, uh, or, you know, very low cost sales acquisition, Abridge, Harvey, companies where, like, the ma…

AI assessment note: “It does mean the same as it has before, if It is high retention and high engagement.”

Q Can I ask you, what decision did you and Mark and Ben most disagree on? And, and what was the outcome? What, where were your views just very divergent, and how did that resolve itself?

A The biggest one was our original investment in Waymo. So we invested in Waymo in early 2020. So we were the only VC find that invested in Waymo in, in, in early 2020. It was extraordinary. I mean, the product was magic even at the time. Like, we, you know, we did demo rides. This was obviously well before, uh, they, they were, they were, uh, everywhere on the road. We did demo rides. You know, it could do, it could drive smoother than a human. They could do unprotected laughs. Uh, they, they could avoid constructions. I think they, they could do all these like really special things that you wouldn't think that an autonomous car could do at the time. Um, but at the time, like they didn't have a product in the market and I thought the valuation was, was really high. Uh, and so, you know, I, I said, here's all this analysis in our team. And, you know, we produced those analysis that showed that, you know, the price was really high and, uh, Mark, Mark and Ben, you know, we're like, it's autonomous driving. Like, what are you talking about? Like, this is the, this is the, this is the endless market size. Um, you know, this, this can be the biggest company in consumer technology. And so, and they're the market leader. And the way we did it was we, you know, we invested a smaller amount at the time, just given we were conflicting points of view on it. Um, but that served us well becau…

AI assessment note: “we invested a smaller amount at the time, just given we were conflicting points”

Q Do you think the market will evolve with like open AI winning consumer and anthropic winning dev and B to B?

A Yeah, I think they actually will, um, diverge in pretty meaningful ways. Um, this is sort of what we've seen in historical technology markets, but I think each will try and remain competitive in their spaces. And so, you know, uh, B to B Anthropic is certainly putting more resource after it today. Open AI is going to have a really good B to B business. They already do. Uh, so I think that market is going to be pretty competitive. Um, you know, not just, not just coding, but general B to B API usage and moving up into the application stack. Both of them are, are obviously trying to do that. So I think that market is going to be pretty competitive. I think Google will play some part in that market. Um, but you know, the big head to head competition will come, you know, between open AI and, and anthropic on the consumer side, I think, you know, it's chat GPT, like ask, Ask my family in Kentucky, what do they use? You know, they, they know what, what is AI? They know Chattupt. They use Chattupt, you know, extensively. Google's going to take a crack at, and they already are, uh, trying to compete in that market. But I think, you know, brand and the best product in the market can take you a really, really long way. Uh, and so, you know, as we under have, have kind of underwritten future rounds of open AI or later rounds of open AI is very much, you know, with the mind of, of consumer…

AI assessment note: “Yeah, I think they actually will, um, diverge in pretty meaningful ways.”

Q What would you say those are to, cause I'm not in those meetings and no one is, and I'm fast at, where was he world class?

A He's world class at brand building, company building, product, Um, and hiring. And when I say, well, those sound like things that are maybe, you know, a little fuzzy, um, but they're not. I mean, they're the most important ingredients for early stage company building. And so, you know, he, he's surrounded himself with an extraordinary team. He's got an incredible insight, which I think is fascinating. Um, consumers in the U.S., Obviously, home ownership is declining, you know, rapidly, and people aren't able to buy homes, and there's a whole political and social issue with that, but it's the reality of the case. Um, the average renter in the US spends 30% of their disposable income on rent. It's the highest amount of spend of any category, and yet it's the only unbranded experience in anyone's life. If you think about, you know, the food you eat, the clothes you wear, the car you drive, Um, you know, the places you go. All of those are branded experiences, and consumers pay a premium for that branded, better experience. Um, and so, you know, his idea was kind of, what if you actually brought brand and a better product experience to a renter's life? Uh, there's a huge market opportunity for it. There's a great business model that goes with it. Uh, and if there's anybody who can do that, given, you know, the intersection of real estate and brand, I think it's Adam. And so, you kn…

AI assessment note: “He's world class at brand building, company building, product, Um, and hiring.”

Q Mine would be Lee Fixel. The guide's ability to predict and forecast markets, like a 10 year vision plan, I think it's really amazing. Or Fenton. Clarity of thought. Fenton could make a fucking plastic bag seem like it's, like, made by Jesus. Like, seriously, like, it's amazing. Anything just sounds poetic. Who's the best picker in Andreessen?

A There are a bunch of really, really talented people at the early stage. Like, I love that I get to learn from these people all the time. I think the People at the early stage that have developed the most clarity of thought on approach to early stage investing, like, I think it's Dixon. Um, you know, he's, you know, he obviously runs our crypto funds now, uh, but, you know, he's, he's got a generalist background as well. He's been doing this for a really long time. Uh, and I think he has the sort of clearest articulation of what our early stage strategy is, which has been adopted, I would say, across the firm. Um, but he, I think he has the clearest, clearest view on it.

AI assessment note: “I think it's Dixon.”

Q to take money off the table with the essential private markets, given how big a name you are and how big a position you often have? You're just a big piece of a cap table. For someone like me, it's much easier to sell out in a later round. Are you able to, and do you have that discussion internally of, hey, We should take chips off the table now.

A We could, but we historically have not. And so, you know, for the most part, for the companies that have decided to stay private, we've been really excited to, to stay in them, keep backing them. And that's probably the strategy that we'll, we'll continue to have. You know, I think this staying private dynamic is a little bit overblown because I think there's some idiosyncratic reasons why certain companies have stayed private. Um, and many companies, many CEOs that I talk to, they are very happy to be public or they're excited to go public. So, you know, I tell our CEOs all the time, I've been fortunate to work with a bunch of public companies. Never one of them has said, I regret going public. And so, uh, I think for most of the companies that we're talking about, they'll wait longer than they had historically, but they will still end up going public.

AI assessment note: “We could, but we historically have not.”

Q Like what? I genuinely want to be educated here, because I, I immediately shivered.

A They were early to figuring out that there would be a huge opportunity in AI. So, you know, they famously were in NVIDIA in, in that fund, uh, you know, and they did some really good investments, like Slack, like Garnet. Um, the, the one piece of it was missing, in my opinion, was that Capital as a weapon was a viable strategy. So capital as a weapon in enterprise is really, really hard to do because you physically have to hire people. You have to hire sales reps. You have to hire marketing people, et cetera. Capital as a weapon in consumer, most of the time it's, it doesn't really work. Like I would say TikTok is maybe the exception, maybe Uber. Um, but you know, the thing that, that maybe was wrong about it was We can king make if we just put the capital into the companies and then that will allow them to win. But that's a bit of an adverse selection machine where the companies that opt into that as their winning strategy are the ones that maybe don't have as good of a reason to win or competitive advantage in the first place. And so if that money is going to go, you know, back to consumers or drivers or whatever it is, uh, in that case, and just get funneled back to Google and Facebook, like, I don't think that king making for that is necessarily a good strategy. Um, but, you know, investing a lot of capital, having a brand that gives a seal of approval, it can definitely he…

AI assessment note: “They were early to figuring out that there would be a huge opportunity in AI.”

Q Love that. I, I spoke to Brian Kim on your team, and he asked me, do you see as part of the growth funds charter to fix the errors of omission from your venture team?

A Very much so. And, but we do it in partnership with the early stage team. So this is, this is like our whole model, right? Um, you know, we talk about mistakes we make all the time and we have some very, I have very painful errors of omission at the growth stage too. I think if you think about what our business is, we're never going to have at the early stage, a hundred percent market share of all the best deals. And so, you know, by having a growth fund, we can come later and And, you know, we, we call it like the fix the mistake fun internally when we're joking around. Uh, but we do that in close partnership with our early stage team. So we always join team meetings. We're always talking to each other. You know, what, what do you, you know, asking the early stage team, like, Hey, what series A's do you wish you had done that you passed on? You know, which seeds do you feel like you passed on? And so when you have a situation like what you described with Maddie and you say, you know, you're pulling your hair out that you, that you didn't do the seed, you know, that's okay. Come back and, you know, come back and fix the mistake at the B or the C. Uh, and so it's a huge part of our charter. By the numbers, about half of what we do is follow-ons from existing venture companies. And then, um, from a dollar standpoint, another 15% is follow-ons from existing growth stage companies.…

AI assessment note: “Very much so. And, but we do it in partnership with the early stage team.”

Q is very simple. I thought I was smarter than markets. I thought I could, uh, forecast what OpenAI's product roadmap would be in the case of 11 Labs, and actually, I should have just 100% backed up the truck on Amazing Founder. Same with Alex at Deal. Payroll, ADP, paychecks.com, blech, but Alex is amazing. Just back, what was your takeaway from Missing that be, which is, is a mistake?

A Yeah, I think often the takeaway is When we make an investment, we should always be investing in strength of strengths as opposed to lack of weaknesses. And so this is a philosophy that comes from Ben, that if you have spiking strengths in a founder and a company, it's okay if there are weaknesses or concerns. Often the mistake, you know, will manifest itself as, you know, the fear of future competition. Like the fear of theoretical competition, right? So that's, that's the perfect articulation of what you just had for 11 Labs and say, oh my gosh, so aren't the labs going to do it? It's the old VC trope of, you know, well, isn't Google going to do it? Or what happens if, if Facebook does this? And so if you overweight the fear of future theoretical competition, you can always talk yourself out of making an investment. And so we try really, really hard to Not to do that. Um, other, other mistakes, you know, if we, if we pass on great companies, it's because, you know, it's not because they're, you know, the market leader. It's not because they have a good business model. It's, it's because we think the market might be too small. Those are mistakes, too. Like, we, we always underestimate the size of a market, and we have fun stories about that all over the place.

AI assessment note: “we should always be investing in strength of strengths as opposed to lack of weaknesses.”

Q get to two 50, and then four X to get to a billion, and then three X to get to three billion, and then, which is all pretty optimistic fucking gross rates, and then with a six X in public markets or seven X, we're looking at a, what, three X on the cash on the price that we're paying today? Wow, that's not a good opportunity cost dollar spent.

A I've been historically surprised at how good the best companies can be and how fast they can grow, especially in markets that are early innings with a big technology shift. So I'm very optimistic. Those are abstract numbers. I also don't think that every great high growth company will end up trading for six times in the public markets. There are some that are going to trade higher based on very high growth rates or high cashflow. And so, you know, it's hard to debate Like an abstract financial case. Uh, but, you know, for, for most of these companies that we've backed, these, these winning apps, they're growing faster, three X faster, you know, than predecessor SaaS and cloud companies. And so, you know, sure, the high, high valuations from the outside, I think in many of those cases are warranted.

AI assessment note: “I also don't think that every great high growth company will end up trading for six times”

Q Everyone shits on them for margins. Do you think that's a really weak argument to shit on AI apps? And do you think we'll just see the transformation of those margins pretty quickly over the next two to five years?

A The history of technology inputs would suggest that the, the margins will rationalize and the margins are going to go up. There's a high amount of uncertainty today. So it's possible that this next generation of, of companies is 50% gross margins. And, you know, that's, if, if they're delivering a ton of value growing really fast, that's totally fine. Um, today, the input costs per token have gone down massively, but token usage has also gone up massively with the introduction of reasoning. So in the last, you know, year and a half or so, it's been a bit of a muddy picture on the input costs. I think over time, That will rationalize, will go down. I think the market structure will end up sort of like cloud for the models where, you know, cloud costs for the average end customer are fine. And, you know, cloud's an oligopoly and they make high profits. I think the model companies, you know, that serve APIs will be relatively oligopolistic. They'll probably have reasonably high margins and the end customers will be pretty high served or well served. Um, on the, the gross margin point today, I'll say this. We give a little bit more of a pass than we used to, and if we ever see a company that pitches us as an AI company, and they have SaaS gross margins, we ask a lot of questions, uh, because it probably means that people aren't actually using the AI features.

AI assessment note: “history of technology inputs would suggest that the, the margins will rationalize”

Q Like, what one really lingers? For me, it's Revolut and Deal.

A Yeah. For current companies on the model side, Anthropic has done a really great job. You know, we're not investors in Anthropic and they've, they've done a really good job. And so, you know, I think it's one of those cases where similar to cloud, like if you could own all of AWS, Azure and GCP as independent companies, You know, like that would suit you pretty well. And again, that's, that's one of those markets that was not winner take all, even though it's a scale market, you know, it's sort of oligopolistic. Like if the model companies turn out to be something similar, given, given how much we expect demand to grow, um, you know, that's, that's probably one.

AI assessment note: “Anthropic has done a really great job. You know, we're not investors in Anthropic”

Q What would you say those are to, cause I'm not in those meetings and no one is, and I'm fast at, where was he world class?

A He's world class at brand building, company building, product, Um, and hiring. And when I say, well, those sound like things that are maybe, you know, a little fuzzy, um, but they're not. I mean, they're the most important ingredients for early stage company building. And so, you know, he, he's surrounded himself with an extraordinary team. He's got an incredible insight, which I think is fascinating. Um, consumers in the U.S., Obviously, home ownership is declining, you know, rapidly, and people aren't able to buy homes, and there's a whole political and social issue with that, but it's the reality of the case. Um, the average renter in the US spends 30% of their disposable income on rent. It's the highest amount of spend of any category, and yet it's the only unbranded experience in anyone's life. If you think about, you know, the food you eat, the clothes you wear, the car you drive, Um, you know, the places you go. All of those are branded experiences, and consumers pay a premium for that branded, better experience. Um, and so, you know, his idea was kind of, what if you actually brought brand and a better product experience to a renter's life? Uh, there's a huge market opportunity for it. There's a great business model that goes with it. Uh, and if there's anybody who can do that, given, you know, the intersection of real estate and brand, I think it's Adam. And so, you kn…

AI assessment note: “He's world class at brand building, company building, product, Um, and hiring.”

Q How do you prevent that fear paralyzing you? Because I too, I have this kind of relationship with fear.

A The way I channel my fear, I channel it into working harder. So if I have a fear at any moment that I, you know, I'm not doing the right things or like the way I try and compensate for that is I dive in, I work harder, I do something different. I reach in and the beauty of our business, you know, same as yours is there's an endless amount of work that you can do. You can always get smarter about a company. You can always get smarter about a trend or a theme. You can always try and form a differentiated point of view on something. You can reach out to people who you learn from. There's just an endless way that you can You know, expend work time, and so when I feel like I'm not doing well or failing, I tend to, you know, go deeper into that stuff.

AI assessment note: “The way I channel my fear, I channel it into working harder.”

Q Can you just tell me on the 50 and 15? 50 is follow on, but 15 is what? Follow on of a different kind?

A Of a, of an originated growth fund investment. So the thing that's important about that is, you know, when we invest, I don't know, two thirds of the time or so, it's into a company that we have a preexisting relationship with, either at the early stage or the growth fund. So the 50 is, you know, we, we did the 11 labs Growth round, and we, and, you know, thankfully, Jennifer and Brian did the, the early stage round. Uh, the 15 would be, we led two more rounds in flock safety, or, you know, we led another round, um, you know, into Figma, or, uh, you know, we, we put more money into SpaceX. So something that was originated, you know, or Waymo, something that we originally did out of the growth fund.

AI assessment note: “Of a, of an originated growth fund investment.”

Q about for today? Like, I, I look at the world and I'm very excited for the first time. I'm like, I can tell my mum that there's hope for MS sufferers, that there might actually be treatment. I like tones of optimism. I like happiness. I think there's not enough of it in the world, despite my cynical disposition most of the time. Um, what are you most excited for?

A On the personal side, I'm really excited. And by the way, these, these are two areas that I think over the next 10 years are going to be really exciting and really investable. But they're kind of early today. One is personal health. Uh, so, you know, it's, it's a little bit related to your point, but more health management. Uh, I was with a really talented, uh, entrepreneur. Well, he's, he's a former large company executive, and he's thinking about starting a company. And his extreme version of it was, you know, tracking and AI coaching that happens for you that explains the trade-offs of every decision you make. That's a little bit too extreme. Uh, but you know, more proactive, more involved management of personal health, I think it's something that's going to happen. You know, it's one of these large consumer categories that hasn't really hit yet. Uh, but I think, I think it's going to happen.

AI assessment note: “One is personal health. Uh, so... more proactive, more involved management of personal health”