The Exchanges

Q didn't actually know that in terms of the historical context of Passiver, so I really appreciate you sharing that. It's a tough one to also pivot from to venture, I have to admit. But you know what? I've done so many of these shows, I can just do it seamlessly anyway. For those that don't know, Mark, how did you make your way into venture just first setting the scene?

A Yeah. So I first got into venture in 2007. And in 2007, I had started two software companies. My second company, I sold the salesforce.com and I actually love Salesforce. It's a great company, but after you've been an entrepreneur for 10 years, at least for me, the idea of working at a larger company and not running the company was not something I wanted to do. So I contacted my VC firm and I said, I think I might start a third company. And they said, have you ever thought about being a GP? Have you ever thought about being an investor? And of course, I had thought about it. I think a lot of people kind of think about would I make a good investor. The problem is in 2007 people didn't really want operators. A lot of VCs were not operators. And so I said to my then mentor, my still mentor, Yves Cisteron, who's the founder of Upfront. Um, I said, I'll do it as long as I'm a GP, as long as I'm actually writing checks and being an investor. So in 2007, I started.

AI assessment note: “So I first got into venture in 2007. And in 2007, I had started two software companies.”

Q Mellowed like a fine wine, Mark. Tell me, final one, what's the most recent publicly announced investment, and why did you say yes and get so excited?

A There's a company I'm in love with called solve and solve is a British founder. In fact, a good portion of our companies in the UK, but the founder is based in Los Angeles. What they do is they produce video games and I'll give you quotations or inverted quotes for the Brits. What they do is video games. So they shoot short form video, which is true crime. And then you start discovering and watching the video. But then you realize that you're actually playing a video game and you get dragged into the story and solving the crimes and playing games as you go. We are live in test markets. We're not yet live in the U S or the UK, but in test markets, it's performing incredibly well. We have a very popular show on Snapchat. It's called solve. You can find it on Snapchat. That's a small snippet of what you're actually going to see in the real product. But we have millions and millions of viewers every month on that. We released a podcast on iHeartRadio. It was one of the most successful podcast releases in the genre. Also millions of followers, and the video game is just killer, and I can't wait till it goes live, publicly available worldwide.

AI assessment note: “There's a company I'm in love with called solve”

Q So do you, what do you expect from your portfolio companies in terms of engagement?

A Well, um, there are different stages of portfolio companies. I have some companies doing 30 to fifty million dollars in sales, and they're run by very professional people who have run even public companies before, and with them, you know, we're gonna do four board meetings a year, and I'm probably talking to them once a month, and probably, um, Hardcore interacting with them every day when things pop up, when we want to buy a company, when we want to hire a senior exec, when we want to raise capital, when we're about to announce a major version of a product. Then I'm talking to them several times a day, either via email or via phone. Um, and then there's early stage companies, an early stage company I want to see in person every single month.

AI assessment note: “an early stage company I want to see in person every single month.”

Q didn't actually know that in terms of the historical context of Passiver, so I really appreciate you sharing that. It's a tough one to also pivot from to venture, I have to admit. But you know what? I've done so many of these shows, I can just do it seamlessly anyway. For those that don't know, Mark, how did you make your way into venture just first setting the scene?

A Yeah. So I first got into venture in 2007. And in 2007, I had started two software companies. My second company, I sold the salesforce.com and I actually love Salesforce. It's a great company, but after you've been an entrepreneur for 10 years, at least for me, the idea of working at a larger company and not running the company was not something I wanted to do. So I contacted my VC firm and I said, I think I might start a third company. And they said, have you ever thought about being a GP? Have you ever thought about being an investor? And of course, I had thought about it. I think a lot of people kind of think about would I make a good investor. The problem is in 2007 people didn't really want operators. A lot of VCs were not operators. And so I said to my then mentor, my still mentor, Yves Cisteron, who's the founder of Upfront. Um, I said, I'll do it as long as I'm a GP, as long as I'm actually writing checks and being an investor. So in 2007, I started.

AI assessment note: “I contacted my VC firm... they said, have you ever thought about being a GP?”

Q Absolutely. Like, that's appalling. In terms of the lines, not dots, do you still agree with that? Like, you fundraise, like we all do kind of continuously. I'm shocked by how few LPs do invest without existing relationships. How do you think about that lines, not dots, and whether it really holds true today?

A So the analogy, just for anyone who hasn't seen it, is, uh, on an x-axis is time, and then a y-axis is performance. And I always said to entrepreneurs, when I meet you, you're a dot. You might be high on the y-axis. You might be low on the y-axis, but however you performed, you performed and I formed an opinion of you. If I meet you a second time, a third time, a fourth time, it starts to form a pattern and that's the line. And sometimes the pattern is up and to the right. I can't believe you launched your product. You hired great people. Your revenue's going great. And then your co-founder quits or sues you, or you got bad press or Google announces they're going to crush you. And then it's down. But over time, you start to see a trend of who you're dealing with and the resilience they have. I think the same is true for LPs making commitments to VCs. Like, you know, you're, you have colleagues that left or you took a write off in Pakistan, right? And what did you make of that? What did you learn of that? How did you respond? How resilient are you? What did you do when everyone was writing huge checks at enormous prices in 20, 21? Were you doing the same thing or were you selling? Were you taking money off the table? So they get to see a pattern over time. Some of my best LP relationships said no to two funds before they finally came in. And so I just viewed it the same way. I'm…

AI assessment note: “I think the same is true for LPs making commitments to VCs.”

Q Okay. Uh, are managers accurately reflecting their books today, do you think? I'm an LP and lots of funds, I'm sure you are too. The numbers still look pretty high.

A Sequoia, Accel, people like that, who don't ever have to think about fundraising, they immediately take markdowns. Managers who didn't have, so we had zero SoftBank deals, we had zero Tiger deals, we had one Coatoo deal, one Insight deal. Um, I'm not saying good or bad of any of those deals, but like we didn't have a rational markups in our portfolio. So you either are A fund that never has to think about fundraising, you just take the mark down, or you're a fund that never subscribed to all the hype in the first place, you don't have as far to fall. But for a lot of people, I think they're not taking the markdowns they need to take. I mean, look at, um, what is it called? Laceworks or whatever. It was valued at eight and a half billion dollars, and it's reported in the press getting sold for three hundred million. That's just one of 1200 companies that's going to go through that, or at least a thousand. Think about funds who said, I'm only going to hold it at Six billion instead of eight and a half billion. I'm only going to hold it at five billion instead of eight and a half billion.

AI assessment note: “for a lot of people, I think they're not taking the markdowns”

Q Absolutely. Like, that's appalling. In terms of the lines, not dots, do you still agree with that? Like, you fundraise, like we all do kind of continuously. I'm shocked by how few LPs do invest without existing relationships. How do you think about that lines, not dots, and whether it really holds true today?

A So the analogy, just for anyone who hasn't seen it, is, uh, on an x-axis is time, and then a y-axis is performance. And I always said to entrepreneurs, when I meet you, you're a dot. You might be high on the y-axis. You might be low on the y-axis, but however you performed, you performed and I formed an opinion of you. If I meet you a second time, a third time, a fourth time, it starts to form a pattern and that's the line. And sometimes the pattern is up and to the right. I can't believe you launched your product. You hired great people. Your revenue's going great. And then your co-founder quits or sues you, or you got bad press or Google announces they're going to crush you. And then it's down. But over time, you start to see a trend of who you're dealing with and the resilience they have. I think the same is true for LPs making commitments to VCs. Like, you know, you're, you have colleagues that left or you took a write off in Pakistan, right? And what did you make of that? What did you learn of that? How did you respond? How resilient are you? What did you do when everyone was writing huge checks at enormous prices in 20, 21? Were you doing the same thing or were you selling? Were you taking money off the table? So they get to see a pattern over time. Some of my best LP relationships said no to two funds before they finally came in. And so I just viewed it the same way. I'm…

AI assessment note: “I think the same is true for LPs making commitments to VCs.”

Q Ok, should you go after the institutions or the big names first, or should you go after your friends and your family, get the local corralled around you? Which one's the better one?

A Well, first of all, money's money. Ok, so you could have Harvard, Yale, Princeton, Stanford, But their money doesn't come with anything additional, right? So money's money. Then the hard job is yours. Like you have to deploy it. You have to get founders to want to work with you, and then you have to make returns, right? So it helps a little bit to have the brand then to raise other LP money, but money is money. And do I think people should go for institutional money? Absolutely. Yes. Why? Because institutional money is way more likely to be in fund two and fund three and fund four. Whereas friends and family money's not as likely to repeat. So just like with CEOs who I might say, look, if you can't raise institutional money, raise friends and family money, it's the backup, probably not your leading plan. Same is true for funds. Like the funds, if you can raise from institutional investors, you should. And the thing is there are institutional investors that want to write three million dollar checks. So if you're raising a fifty million dollar fund, like that's a good size for them.

AI assessment note: “do I think people should go for institutional money? Absolutely. Yes.”

Q Okay. So the question for you is, Are they bad for our ecosystem? As you said, they will help a load of seed managers raise new funds. They will give confidence to LPs, rightly or wrongly. Are they good or bad?

A I don't, I don't ever ascribe good or bad, like markets, um, will be markets and there's not good actors in bad markets, there's markets. And so if you look at the over capitalization, for example, of the telecommunication industry in the 19 nineties in the U S a lot of people lost money. There were a few winners, but a lot of people lost money. But out of that, out of the ashes, um, rose the broadband industry because all that money Fueled laying down broadband fiber to the home. There's going to be some good. There's going to be some bad, but here's the thing you should know. 1998. Okay. If you look at venture capital, it took two years for the top quartile to go from one X to 3.3 X. Okay. Two years. Think about what that means. I have to deploy my whole fund and my whole fund has to be marked up 3.3 X in two years. The only thing that could deliver that kind of returns for an early stage fund is momentum. It's like not based on fundamentals. You can barely even finish your code in two years. And it fell from 3.3 down to 1.4. Okay. But, but it took five years to be marked down from 3.3 to 1.4. And this is top quartile. This is not the whole industry. And by the time TVPI turned to DPI at the end, it was 1.7. It never, there was no dead cat balance. It was flat. So five years. 1998, 99, 2000 are nothing compared to the over valuations of 20 21. So we're two years into a correc…

AI assessment note: “I don't, I don't ever ascribe good or bad, like markets, um, will be markets”

Q Okay. Uh, are managers accurately reflecting their books today, do you think? I'm an LP and lots of funds, I'm sure you are too. The numbers still look pretty high.

A Sequoia, Accel, people like that, who don't ever have to think about fundraising, they immediately take markdowns. Managers who didn't have, so we had zero SoftBank deals, we had zero Tiger deals, we had one Coatoo deal, one Insight deal. Um, I'm not saying good or bad of any of those deals, but like we didn't have a rational markups in our portfolio. So you either are A fund that never has to think about fundraising, you just take the mark down, or you're a fund that never subscribed to all the hype in the first place, you don't have as far to fall. But for a lot of people, I think they're not taking the markdowns they need to take. I mean, look at, um, what is it called? Laceworks or whatever. It was valued at eight and a half billion dollars, and it's reported in the press getting sold for three hundred million. That's just one of 1200 companies that's going to go through that, or at least a thousand. Think about funds who said, I'm only going to hold it at Six billion instead of eight and a half billion. I'm only going to hold it at five billion instead of eight and a half billion.

AI assessment note: “for a lot of people, I think they're not taking the markdowns they need to take.”

Q But will we even have a correction? Because it seems like here, venture was about to, and then it's like, boom, AI.

A Of course, of course you will have a correction. Let's look at AI. If you take generative AI companies at the seed stage, um, they are, I mean, you know, any seed deal is overvalued. Any, any startup is overvalued because you're talking about a company that has no customers, no revenue, no nothing. But if you want to do generative AI in 20, 23, 24, you're paying 44% premium to do a generative AI deal. Remember, entry price matters, exit price matters. Um, at the B round, it's like 200% premium to an enterprise software company. So let me say this to you, Harry, and this is the hard thing about investing. To make money as any investor, you have to believe something that other people don't believe, and you have to be right. So if you're betting on generative AI for the first time in 23, 24, 25, good luck making returns. Because even if you get into reasonable companies, and chances are you won't. But even if you get into reasonable companies, you're paying a premium because the market has already moved there. The arbitrage is gone. If you were in crypto in 2013, 2015, 2017, you made a lot of money, right? You pushed all your chips in 2021. God help your returns. So this is the weird thing. You go to see LPs. LPs want to talk about the trend of the day because they're hearing about generative AI in the press. They're hearing about it from every VC. We don't write right now upfront…

AI assessment note: “Of course, of course you will have a correction. Let's look at AI.”

Q How did you change as a result of that?

A So we started getting more disciplined about reserves, and I started doing better planning and realizing that what drove me to make the mistake in the first place was ego. I was driven by like, I'm not going to have a new investor come in and own more than I own because I've done all the hard work for the last three or four years, or this is my winner. Like, okay, I know I have six million dollars into this, but why wouldn't I have fifteen million dollars into this? So I think really ego got in the way and I made that mistake really early in my career. And then I started advising the rest of my partners. I'm like, don't let ego get in the way. Like, We can love the founder, we can love the market, and just not love the valuation.

AI assessment note: “we started getting more disciplined about reserves, and I started doing better planning”

Q mean, that means the world to me, and, uh, I just love doing it. It seems very incredible that it's my job, but I really appreciate that, but I want to start staying on you, Mark, so tell me, and And for those that maybe missed our first episode, how did you make your entrance into the wonderful world of venture and come to be a GP at Upfront today?

A Sure. Well, I had previously founded two tech startups. They were both in a field known as document collaboration. Back when I was doing it, people didn't seem to care that much collaborating on documents, and now it's become the thing. We've seen collaborative tools from anything from a Dropbox or a Box or But you also have companies like Slack and companies like Procore in the construction space where I started, and it's become quite a big deal. But having been a two-time CEO, after I finished a period of time as VP of product at Salesforce.com, the firm that had funded both of my companies asked if I wanted to join as a partner. And so since 2007, I've been a partner at what's now Upfront Ventures.

AI assessment note: “the firm that had funded both of my companies asked if I wanted to join”

Q So is there any way to, like, how much capital should they raise in terms of run rate? Should you go for 18 months run rate? 12 months run rate.

A I mean, the ideal amount of capital, if you can raise it as 18 months. But, but let me tell you why though, Harry, just so you understand it, is, you know, in a, in a normal funding environment, it probably takes you four to six months to raise capital. And let me just have that and call it, you know, let's say it takes two to three months to raise capital. You need enough time that you can actually prove something before you ask for capital. And you certainly don't want to be raising capital when you have three months in the bank. So if it's going to take you three months to raise, you better start raising with six months left in the bank in case it takes you longer, right? So if you, if you have a year's capital, you're fundraising six months in.

AI assessment note: “the ideal amount of capital, if you can raise it as 18 months.”

Q And how would you recommend that startup founders meet investors? That can often be the biggest problem, just getting the foot through the door. What would you recommend?

A Um, I have a piece of advice that I try to tell people. Um, I, I use a lot of metaphors. My metaphor is 50 coffee meetings. And 50 coffee meetings is committing yourself just one time per week for a year. One time a week to going and having coffee with another entrepreneur and getting to know them and their business and their journey and their story. And if you meet 50 people in a year, and that's a very low bar to ask, but if you do it, maybe 10 of them you'll become close with. And from those 10 people, you will find who their angel investors were, who their VCs were, how did they hire staff, how much did they pay recruiters, how did they get in TechCrunch or Financial Times or whatever. And you earn the right To then ask for introductions when they know you to their investors. The single best introduction is a portfolio company CEO. If one of the CEOs of the companies I've invested in sends me a deal, I'm going to meet them every time. And that's a right that you have to earn. That's why you have to start the process early.

AI assessment note: “The single best introduction is a portfolio company CEO.”

Q And for upfront, what are your kind of metrics? Well, A, what are your ground preference, sector preference? Are you stage agnostic? What's the kind of background or the mission to the fund?

A So our latest fund, uh, we just started investing it this year in 2015 as a two hundred and eighty million dollar fund. Uh, in case your viewers are interested in this sort of thing, I'll just tell you how we plan out our fund. We think about, if I take a two hundred and forty million dollars of it, and I say, what I really want to do is invest half of the fund into companies, and reserve the other half of the fund to follow on my best deals. So that's about a hundred and twenty million dollars of primary investments. And we try to invest it over a three-year period of time, which means 80, sorry, means forty million dollars per year. And if you look at forty million dollars a year, we have five full-time partners. That's about eight million dollars a year per partner. And we tend to do C to A rounds. Our average check size is between three to three and a half million dollars. So what you're really talking about is, in terms of new investments, each partner doing between two to three deals per year maximum.

AI assessment note: “And we tend to do C to A rounds. Our average check size is”

Q So when these hard moments happen, what do you do today? With all the years of experience that you have, how do you manage that conflict in your own mind today?

A Well, I view the job of a CEO and the job of a managing partner at a venture fund, so I run our venture fund, is really to shield people from that. That's literally part of your job as a leader is to shield other people from the stresses and pressures that you face. Um, talk about You know, fundraising, like fundraising is not easy for VCs. Like maybe it's easy if you're Sequoia or Andreessen Horowitz, but for all the rest of us, fundraising is hard. I know. Through 30 years of doing startups and venture, that persistence pays off. And your ability to work through problems pays off. So if I look at venture capital going and raising money, um, I used to tell people about fundraising, which is lemons ripen early. And what do I mean by that? So if you go ask 30 people for money, Five or 10 of them are going to tell you no quickly because no's come quickly and the yes's take months. So the problem is psychologically you get in your head. Oh my God. Everybody's telling me no. And you could easily give up and people do give up. And my mindset is I know our returns are good. I know our team's good. I know the opportunity in the market's good. I'm just going to keep moving ahead and I know we'll get to the finish line, but it's my job to not let everyone on my team feel that way. So I have To suppress it.

AI assessment note: “My mindset is I know our returns are good... So I have To suppress it.”

Q You said 11, 12 for entry price, and I love your honesty around price discipline, because everyone normally says, well, it just matters that you're in the best companies. Question on 11, 12. Respectfully, anyone who comes out of a great company now raises five on 25 from Andreessen. How do you do 11 or 12, and does that mean that you're getting different founders?

A So, your question actually is, is there selection bias? Are you picking companies that are not going to be as good? I don't agree with the premise. I don't believe that everyone raises five on 25 from Andreessen. I think Andreessen's great for some people, not good for other people. Um, and also our median, uh, investment pre-money is 11 or 12, but we pay 20, we pay 25. It depends on the founder. It depends on how much progress they've made. It depends on what we see as the opportunity and how competitive it is. Um, but do I think that there's selection bias? No, there are Great people who leave companies. You have to make an earlier bet. I might have been able to wait six months, nine months, 12 months to make a bet. We have to know the founder before they create the company.

AI assessment note: “do I think that there's selection bias? No, there are Great people”

Q he said, we get operator investors wrong. Founders who turn investors are brilliant. Operators are generally not. They've run divisions at large companies. It does not mean you understand the zero to one, the granular, and it's such a different element between founder turned investor and operator turned investor, and we should delineate between the two. Have you found that as a difference? And how do you think about that?

A I do think one thing that was unique about being a founder two times is I think I uniquely understood the journey, not unique to me, but relative to someone who hadn't done it, the journey of zero to one, just how hard it is. And, uh, you know, we were talking just before we started about the kicks and the shins that you really take, um, as a founder, even of a venture fund. Um, but in fact, uh, I remember raising capital. My mom assuming I was going to IPO sometime soon. I'm thinking I have six months cash left in the bank. My employees coming to me and asking if they should take out a loan to buy a house. And I'm thinking, God, no, like, why would you do that? I have no idea if we're going to be in business in seven months. And you've got to suppress all of that. You got to turn up at the office every day with enthusiasm and telling people all the positive things that are going to happen. And you sort of learn what that psychological thing is for founders, so that's something I try to bring to the table.

AI assessment note: “I do think one thing that was unique about being a founder two times”

Q Can I ask you, what was your worst days?

A The things that people don't tell you about Venture, losing money is hard for anybody, and nobody wants to lose money, and taking write-offs is, is really painful, but there's worse than that. There's worse than that because, like, we sort of, as an industry, we lionize founders, and we say they're amazing, and VCs aren't, Of course, terrible and evil, but there's the same proportion of good and bad people who are entrepreneurs, who are investors, who are big company people, operators, whatever, like the human population is a human population. So if you're going to fund a 120 or a 150 people, you're going to find some entrepreneurs that are not good. And so, you know, I found myself in a situation of people that I had backed for years, um, that suddenly Turn bad. And they threaten you, they threaten lawsuits, you've got to deal with the legal side of it. I know many GPs dealing with this now, and they call me and they can't talk about it publicly.

AI assessment note: “I found myself in a situation of people that I had backed... that suddenly Turn bad.”

Q So when these hard moments happen, what do you do today? With all the years of experience that you have, how do you manage that conflict in your own mind today?

A Well, I view the job of a CEO and the job of a managing partner at a venture fund, so I run our venture fund, is really to shield people from that. That's literally part of your job as a leader is to shield other people from the stresses and pressures that you face. Um, talk about You know, fundraising, like fundraising is not easy for VCs. Like maybe it's easy if you're Sequoia or Andreessen Horowitz, but for all the rest of us, fundraising is hard. I know. Through 30 years of doing startups and venture, that persistence pays off. And your ability to work through problems pays off. So if I look at venture capital going and raising money, um, I used to tell people about fundraising, which is lemons ripen early. And what do I mean by that? So if you go ask 30 people for money, Five or 10 of them are going to tell you no quickly because no's come quickly and the yes's take months. So the problem is psychologically you get in your head. Oh my God. Everybody's telling me no. And you could easily give up and people do give up. And my mindset is I know our returns are good. I know our team's good. I know the opportunity in the market's good. I'm just going to keep moving ahead and I know we'll get to the finish line, but it's my job to not let everyone on my team feel that way. So I have To suppress it.

AI assessment note: “my mindset is I know our returns are good... I'm just going to keep moving ahead”

Q You said 11, 12 for entry price, and I love your honesty around price discipline, because everyone normally says, well, it just matters that you're in the best companies. Question on 11, 12. Respectfully, anyone who comes out of a great company now raises five on 25 from Andreessen. How do you do 11 or 12, and does that mean that you're getting different founders?

A So, your question actually is, is there selection bias? Are you picking companies that are not going to be as good? I don't agree with the premise. I don't believe that everyone raises five on 25 from Andreessen. I think Andreessen's great for some people, not good for other people. Um, and also our median, uh, investment pre-money is 11 or 12, but we pay 20, we pay 25. It depends on the founder. It depends on how much progress they've made. It depends on what we see as the opportunity and how competitive it is. Um, but do I think that there's selection bias? No, there are Great people who leave companies. You have to make an earlier bet. I might have been able to wait six months, nine months, 12 months to make a bet. We have to know the founder before they create the company.

AI assessment note: “our median, uh, investment pre-money is 11 or 12, but we pay 20”

Q We're both in the game of VC brands. I'm interested. How do you think about the importance of VC brand?

A I think it's critical. I think it's critical in ways that it's hard to explain, just like branding in general is hard to explain. But as a VC, the easy bit is writing checks. It's not hard to write checks. It's hard to win deals that other people want to do also. And that's almost the definition of the deals you should be wanting to do, which is ones where there's a founder who has access to different funding sources and Can consider his or her options. And you're just one of those options. And brand really plays into that. They have to perceive that you're going to be value add. They have to perceive that you're going to act in a good way that represents their interests in good times and bad. They're going to want help with introductions. They're going to want to help with figuring out difficult things and getting access to publicity. And all of those things are encapsulated in brand because when they go to make a decision across firms, it's a very emotional thing. That you can't just say, oh, I did a scorecard, and you got a 4.36, therefore I pick up front, and it's the intangible of brand that ends up winning deals in tough times.

AI assessment note: “I think it's critical... It's hard to win deals that other people want to do”

Q Do you not think everyone, though, sees that? Like, given the cadence of spin-outs from SpaceX and the amount of funding that's gone in, it's not really a contrarian thesis, is it?

A First of all, let me say, I should say, of all the companies, um, that are spinning out of SpaceX, something like 30% of them are going into space. There's people going into energy, there's people going into cleantech, um, there's people who are doing other things like, you know, other types of infrastructure. But what it's doing is it's leading to a moment in Los Angeles. Where there's a lot of hard tech founders working on things that wouldn't have been funded five or 10 years ago. Um, of course, there are other VCs. There's great VCs focused on it. You have Founders Fund focused on it. You have Lux focused on it. You have Andreessen Horowitz focused on it. But the overwhelming majority of the industry is not focused on it.

AI assessment note: “But the overwhelming majority of the industry is not focused on it.”

Q Ok, should you go after the institutions or the big names first, or should you go after your friends and your family, get the local corralled around you? Which one's the better one?

A Well, first of all, money's money. Ok, so you could have Harvard, Yale, Princeton, Stanford, But their money doesn't come with anything additional, right? So money's money. Then the hard job is yours. Like you have to deploy it. You have to get founders to want to work with you, and then you have to make returns, right? So it helps a little bit to have the brand then to raise other LP money, but money is money. And do I think people should go for institutional money? Absolutely. Yes. Why? Because institutional money is way more likely to be in fund two and fund three and fund four. Whereas friends and family money's not as likely to repeat. So just like with CEOs who I might say, look, if you can't raise institutional money, raise friends and family money, it's the backup, probably not your leading plan. Same is true for funds. Like the funds, if you can raise from institutional investors, you should. And the thing is there are institutional investors that want to write three million dollar checks. So if you're raising a fifty million dollar fund, like that's a good size for them.

AI assessment note: “And do I think people should go for institutional money? Absolutely. Yes.”

Q But it's so lovely to do this in person. Before we dive in, is there anything that you want to start with?

A Yeah, I would, if it's okay with you. Um, today is actually Passover, and Passover is a holy day for Jewish people, so you might ask why I'm here. Um, this is maybe the first year I haven't been home with my family having a Seder. I actually came to London to pick up my son who did a study abroad, um, but for any non-Jewish listener, I just want to acknowledge what Passover is. It was the struggle of the Jews to flee from slavery from the Egyptian people, and it's a story from the Bible about the goal of the Jews to return to their homeland and the homeland of the Jewish people. Many people don't know all Jews know was actually Israel. And so we originated from Judea and Samaria, which is modern day Israel. And we over time were enslaved and, uh, oppressed throughout thousands of years who were founded about 4000 years ago, uh, for dates. And the idea of Passover is that eventually you will return to your ancestral land, so we say every Passover next year in Jerusalem, and we've been saying this for thousands of years, and so I just want to acknowledge that there's still a 130 people being held hostage in Gaza. The 130 people, for a lot of people who want peace, I think everyone wants peace, including Jews, but the starting point is to acknowledge that there's a 130 people Taken hostage, held by terrorists, of which it's estimated 20 to 40 of them are already dead and not relea…

AI assessment note: “Yeah, I would, if it's okay with you. Um, today is actually Passover”

Q So how many, if you were to make an assessment, how many do you think are legitimate unicorns?

A Of the 1221 and 22 that were funded, my guess is a thousand of them will never achieve an exit value of a billion dollars or more. But look at it. Of the 1260% were marked by four firms, ok? SoftBank, Tiger, Coachu, and Insight. And I'm not saying they're not smart investors, they are, but there was this euphoria of people just paying prices. But the average SoftBank deal And SoftBank, the, the whole team is gone now, right? Like, um, I don't know if anyone's left, like, all their investors. I think Mass is still there. Yeah, well, I meant, I meant, I meant, I meant a, let's say they're North American team. And I'm not saying they're bad people either. Like, I mean, he made money on Arm. He's, you know, he's certainly a smart guy, but they wrote a typical three hundred million dollar check into a company at a four billion dollar valuation. Of course, I'm making these up, but that's roughly about where they were. Founder took 20 to fifty million off the table. And they know they're never going to be worth four billion dollars so that it's a zombie company. So then the employees eventually are going to figure that out and they're going to leave. So it becomes even more of a zombie company. There's no even cleaning it up. And so they've just walked away from those investments. So how many seed funds are there that are held at seven X, nine X, 12 X, TVPI, zero DPI on the basis of t…

AI assessment note: “my guess is a thousand of them will never achieve an exit value”

Q he said, we get operator investors wrong. Founders who turn investors are brilliant. Operators are generally not. They've run divisions at large companies. It does not mean you understand the zero to one, the granular, and it's such a different element between founder turned investor and operator turned investor, and we should delineate between the two. Have you found that as a difference? And how do you think about that?

A I do think one thing that was unique about being a founder two times is I think I uniquely understood the journey, not unique to me, but relative to someone who hadn't done it, the journey of zero to one, just how hard it is. And, uh, you know, we were talking just before we started about the kicks and the shins that you really take, um, as a founder, even of a venture fund. Um, but in fact, uh, I remember raising capital. My mom assuming I was going to IPO sometime soon. I'm thinking I have six months cash left in the bank. My employees coming to me and asking if they should take out a loan to buy a house. And I'm thinking, God, no, like, why would you do that? I have no idea if we're going to be in business in seven months. And you've got to suppress all of that. You got to turn up at the office every day with enthusiasm and telling people all the positive things that are going to happen. And you sort of learn what that psychological thing is for founders, so that's something I try to bring to the table.

AI assessment note: “relative to someone who hadn't done it, the journey of zero to one”

Q But will we even have a correction? Because it seems like here, venture was about to, and then it's like, boom, AI.

A Of course, of course you will have a correction. Let's look at AI. If you take generative AI companies at the seed stage, um, they are, I mean, you know, any seed deal is overvalued. Any, any startup is overvalued because you're talking about a company that has no customers, no revenue, no nothing. But if you want to do generative AI in 20, 23, 24, you're paying 44% premium to do a generative AI deal. Remember, entry price matters, exit price matters. Um, at the B round, it's like 200% premium to an enterprise software company. So let me say this to you, Harry, and this is the hard thing about investing. To make money as any investor, you have to believe something that other people don't believe, and you have to be right. So if you're betting on generative AI for the first time in 23, 24, 25, good luck making returns. Because even if you get into reasonable companies, and chances are you won't. But even if you get into reasonable companies, you're paying a premium because the market has already moved there. The arbitrage is gone. If you were in crypto in 2013, 2015, 2017, you made a lot of money, right? You pushed all your chips in 2021. God help your returns. So this is the weird thing. You go to see LPs. LPs want to talk about the trend of the day because they're hearing about generative AI in the press. They're hearing about it from every VC. We don't write right now upfront…

AI assessment note: “Of course, of course you will have a correction.”

Q So how many, if you were to make an assessment, how many do you think are legitimate unicorns?

A Of the 1221 and 22 that were funded, my guess is a thousand of them will never achieve an exit value of a billion dollars or more. But look at it. Of the 1260% were marked by four firms, ok? SoftBank, Tiger, Coachu, and Insight. And I'm not saying they're not smart investors, they are, but there was this euphoria of people just paying prices. But the average SoftBank deal And SoftBank, the, the whole team is gone now, right? Like, um, I don't know if anyone's left, like, all their investors. I think Mass is still there. Yeah, well, I meant, I meant, I meant, I meant a, let's say they're North American team. And I'm not saying they're bad people either. Like, I mean, he made money on Arm. He's, you know, he's certainly a smart guy, but they wrote a typical three hundred million dollar check into a company at a four billion dollar valuation. Of course, I'm making these up, but that's roughly about where they were. Founder took 20 to fifty million off the table. And they know they're never going to be worth four billion dollars so that it's a zombie company. So then the employees eventually are going to figure that out and they're going to leave. So it becomes even more of a zombie company. There's no even cleaning it up. And so they've just walked away from those investments. So how many seed funds are there that are held at seven X, nine X, 12 X, TVPI, zero DPI on the basis of t…

AI assessment note: “my guess is a thousand of them will never achieve an exit value”