The Exchanges

Q When we look at companies going from one to 20 to 30 to 40, there's actually quite a few that do that today. Before that was completely unheard of. How much weight should we place on revenue growth today versus not? And is there a world where these companies that are going from one To three or four, three or four, right? This used to be good. I'd left behind.

A So if, if you want to know the, the three investment theses that I have for our fund, um, I'll, I mean, this is exactly what I told LPs, and it will answer your question in a second. I think we have, we have three. We have one, which is we invest in system, like I call it Greenfield Bingo, and most of the green, like these are existing software companies, but selling to new companies as opposed to, you know, selling to the hostages that will never leave. They tend to be systems of record. Right. Like the re or vertical operating system. So like the reason why real it, I love that company so much. That's never going to grow like zero to a hundred in like a month, but it is very, very sticky revenue. Like once you're on, like NetSuite has hostages, not customers. They're not going to leave. You know, if this can, if, if real it can sell into every new company, like they're going to do great. The revenue growth will be slower, but it will be so sticky and they have infinite option value and adding like, Hey, do you want to have a, Collections AI agent that runs on top of, you know, overdue invoices, blah, blah, blah. And that's, like, optionality on top of your sticky system of records. So number one is Greenfield kind of systems of record. Number two, and this goes to the fastest growing companies in the world that you're talking about, is, like, software that does the job of lab…

AI assessment note: “if you want to know the, the three investment theses that I have for our fund”

Q Every LP says the canonical wisdom and the theory of venture As you scale, performance goes down. Do you legitimately think then that with the expansion of these markets, you can maintain five X plus net funds at scale?

A Well, I think the difference though is that imagine that you're an LP and you have a billion dollars to invest. Would you rather get, would you rather invest fifty million dollars and get a five X on that? Or would you rather invest all billion and get a three X on that? And the answer is you'd rather get a three X on a billion than a five X on, you know, five million. Or, um, one of my good friends is this guy, Mickey Malka at Ribbit. I was lucky to be an investor in his fund one personally. And it's like, that was like a 55 X fund, um, on, I think it was like an eighty five million dollar fund, but 55 X, like that's insane. But, you know, at some point, um, you, you could ask Mickey this too. It's like, you're better off with like a five X on like a very, very large fund. Like the harder thing to do is to just return gross dollars, uh, period. Like that, that's what LPs actually want. It's amazing to get a hundred. Like I've, I've had two funds that I've invested in. One is Mickey. This other one is this fund called AngelPad. Which was, uh, kind of like a third rate competitor. I don't want to call it third rate, but it was like, it was not, you know, there was Y Combinator and then it's like, there was AngelPad. It was just like this, this small little experiment. That was a 120 X. I got a 120 times the capital that I get DPI.

AI assessment note: “the harder thing to do is to just return gross dollars, uh, period.”

Q Alex, I could speak to you all day. I know you do actually have to work as well. Uh, I want to do a quick fire round with you. I'm just gonna give you a couple of quick statements. What have you changed your mind on most in the last 12 months?

A I've probably changed my mind on, well, as I mentioned, you have to be able to change, like, it's more of companies where we didn't do the, we didn't do, like, the early round, and then it's like, I'd rather be rich than right. That's, that's what we often talk about. It's like, alright, I want to be right, so we've probably done a couple deals where it's like we passed, you know, round N minus one, we end up doing round N, but I don't think I've changed my mind on that much. Maybe I would say, like, this idea of private equitizing venture capital, I, I wrote a piece. I was probably the first one to talk about this in 2023, around how, what you're going to start doing is, um, you know, you could buy a company and then add AI to it. And, you know, I think general catalyst is now like a bunch of firms are now doing this. And I was, I was the first person to talk about this. And I, I, I called it barbarians at the gate with an AI. Um, I probably become more bearish on that just because it, Feels like just a founder market mismatch. Um, so that's probably the thing that I've changed my mind on the most.

AI assessment note: “so that's probably the thing that I've changed my mind on the most.”

Q two, five x on two 50, than, I don't know, 15 x on 10, or whatever it is? Um, Yes, but there's an opportunity cost of dollars, and for an endowment fund, they are able to put it into the smaller fund, and so do you accept with that then, that you just scale out of certain LPs, and it's no longer the best risk-adjusted place to put money then?

A Well, I bet I, I think it's a, obviously you can't, you can't disprove a, an unknown future. Um, but I would pause it to say that if you were trying to find pick and win the best deals, and maybe you disagree with me on like the kind of the small specialist, um, or a large generalist, but who wins the best consensus deals? Every now and then there will pop up a non-consensus deal that everybody thinks is terrible. Nobody wants to, Sequoia doesn't want to do it. We don't want to do it. You don't want to do it. Nobody wants to do it. Um, and then it ends up being a thousand X and then somebody who is not the best known venture firm, you know, ended up winning that deal or being sold that deal, I should say. And then it ends up with a, with a great return. But a lot of the best deals will go to the best firms. Like that's, what's very different about venture capital than like private equity. Like if, if you and I are trying to take a public company private, You know, you're KKR and I'm Blackstone. We're both trying to, you know, take over RJR and Abisko or something like that. They're just going to sell to whoever offers them the highest price per share. I mean, they have to. Whereas in venture capital, as you know, you have to win the hearts and minds of the entrepreneur and win that deal. And a lot of the best deals are somewhat obvious. Like, it's not surprising. Like, everybod…

AI assessment note: “a lot of the best deals will go to the best firms”