The Exchanges

Q Dude, I so appreciate that, but you have some big news today. And so I just want to start on that. What's the big news for us today? And then we can roll from there.

A Yeah, thanks. So the big news is today I am officially announcing that I've joined Lightspeed Venture Partners as a partner. And, uh, after Seven and a half years at KP and almost 11 years in the venture business. This new chapter in my career is really, really exciting in the sense that I, I feel like I really get to step into a truly global platform and really play a role in kind of driving what was once the core of the firm forward, which is this early stage enterprise investing that really set the tone for Lightspeed success and what it was able to become today. So I feel really, really grateful to partner with that team and, and, uh, yeah, that's the next chapter of my career and, and I think it could be the last.

AI assessment note: “today I am officially announcing that I've joined Lightspeed Venture Partners”

Q I'm thrilled to hear it. Congratulations. Amazing news. I want to start on like, Lightspeed are one of few firms that in the nicest way are walls of money. Um, you, there's GC, there's a couple of other big names who just have pretty much more money than anyone else. Why do you think these mega platform plays are likely to be the winners in the next generation of venture?

A So I think we're in this really unique Point in time, both in terms of the technology entrepreneurship industry and, and consequently the venture industry. And that if you look back five or seven years ago, we would be talking about companies like Databricks or Snowflake or, or even DoorDash on the consumer side as sort of the, the hallmarks of venture success. And I think what we're seeing now is that there's this new shape of company that's emerging that really in some sense puts those to shame, right? We're talking about going from talking about 30 to fifty billion dollar outcomes to Multi-trillion dollar outcomes in the form of SpaceX or OpenAI or Anthropic, where Lightspeed is very proudly an investor. And I think what that means is you also sort of have to take a step back and say, okay, so like, where is the alpha going to come from in the industry if that's the case? And I think what I'm seeing and, and sort of have been thinking about for a long time is that these platforms that, um, that, that have the scale of some of those that you mentioned, Lightspeed included, you know, they get to have really interesting conversations about like, hey, what if we invest a billion dollars in one of these companies that could be worth trillions of dollars? And And what if we were to succeed in terms of turning a billion dollars into 10, twenty billion dollars? I think that's just n…

AI assessment note: “having the chip stack that these large platforms have is, is really uniquely beneficial”

Q I'm thrilled to hear it. Congratulations. Amazing news. I want to start on like, Lightspeed are one of few firms that in the nicest way are walls of money. Um, you, there's GC, there's a couple of other big names who just have pretty much more money than anyone else. Why do you think these mega platform plays are likely to be the winners in the next generation of venture?

A So I think we're in this really unique Point in time, both in terms of the technology entrepreneurship industry and, and consequently the venture industry. And that if you look back five or seven years ago, we would be talking about companies like Databricks or Snowflake or, or even DoorDash on the consumer side as sort of the, the hallmarks of venture success. And I think what we're seeing now is that there's this new shape of company that's emerging that really in some sense puts those to shame, right? We're talking about going from talking about 30 to fifty billion dollar outcomes to Multi-trillion dollar outcomes in the form of SpaceX or OpenAI or Anthropic, where Lightspeed is very proudly an investor. And I think what that means is you also sort of have to take a step back and say, okay, so like, where is the alpha going to come from in the industry if that's the case? And I think what I'm seeing and, and sort of have been thinking about for a long time is that these platforms that, um, that, that have the scale of some of those that you mentioned, Lightspeed included, you know, they get to have really interesting conversations about like, hey, what if we invest a billion dollars in one of these companies that could be worth trillions of dollars? And And what if we were to succeed in terms of turning a billion dollars into 10, twenty billion dollars? I think that's just n…

AI assessment note: “having the chip stack that these large platforms have is, is really uniquely beneficial”

Q What have you changed your mind on most in the last 12 months? Like, for me, 12 months ago, I was quite dubious, honestly, of OpenAI's long-term sustainability and enterprise value. Now, I think it's unwavering that there'll be a two trillion dollar company. Unwavering.

A So, I think for me, the thing I've changed my mind on the most in the last 12 months, specific to AI, is how to think about, like, the net revenue mix of companies like OpenAI and Anthropic. And so, Look, I remember when investors were considering, uh, participating in a thirty billion dollar valuation round for OpenAI. The question in the room was like, should we even value this ChatGPT thing as anything, right? Like, is it, is it worth anything? Or is it just a proof of concept to show what the model's capable of? And conversely, I think people were looking at these API businesses where they make the model available to developers and saying, hey, this is going to be like Stripe or Twilio or, you know, the next great API driven business. And I think what's happened in practice, I didn't anticipate Which is that it turns out that these API driven businesses are really, really tricky. One, you have this kind of a hundred X year over year decrease in prices per token. So you have like downward pricing pressure that is inevitable driven by the competition. Two is you have this like almost zero switching cost where let's say, you know, Claude releases a new, a new version of its model. And I think it's better and performs better against my evals. And I'm currently using open AI. It's not terribly hard in most application areas to switch to that model. So you have downward pricing p…

AI assessment note: “the thing I've changed my mind on the most in the last 12 months”

Q You mentioned Glean there, and hey, if you invest in Glean, you can't do OpenAI. I'm just intrigued. Is the age of competitive investing over? You know, you mentioned being an investor in Anthropic. You're also an investor in Mistral. Does it matter anymore investing in competitors?

A So I think every firm takes a very different view on this. And I can tell you that when we were at Kleiner Perkins, it was, it was something that we, it was kind of a red line that we wouldn't cross. And the reason for that is because we invested in so few companies and we go so deep with each of those companies that In our mind, it was just too hard to feel like we could really provide that level of service to, to each company in a way that would make conflicts and non-issue. Um, I think it's a little harder for me to speak about kind of how we do things at light speed in that sense. But I think to your point, you're seeing, you're seeing a lot of these later stage investments, um, get made into sort of multiple players. And I think part of that is like, there's just so much demand for capital from these big firms that these model providers want. And I think on the other end, it's really hard to say how this is going to play out to the point that I think there's a need for diversification. as well on the investor side. And so, one argument would be, hey, pick one of these companies, go all in on them. And you can see that's sort of what Thrive is doing with OpenAI. You could also say the same about Founders Fund. Another would be, hey, who knows how it's going to play out? And I think what you're seeing with, say, Andreessen Horowitz is they're, they're trying to invest in eve…

AI assessment note: “I think it's a rational strategy so long as you have buy-in from the entrepreneurs”

Q next generation of venture or the next decade of venture, do we play collaboratively together in it? And I mean this nicely, not conflictingly, but like, you know, I'm a, I'm more of a seed only manager. Um, I've got smaller funds, obviously, like do boutique seed specialists and these mega platforms play collaboratively or do the mega platforms bluntly just have a different cost of capital and eat seed?

A I think the answer is, is somewhere in the middle, which is that of course, multi-stage firms, By virtue of being multi-stage, they want to be first, right? That's where the generational returns get made, and we've seen that time and time again. If you look at some of the best venture investments in history, they've been these seed investments in these companies that have gone on to grow really, really large, and they've come from an investor who's continued to concentrate more and more capital in that company over time, so that they have a large amount of ownership at the end of the day. So that, that is where I think the competition lies, and that's obvious, right? But I, I also think that, like, look, the, the great seed firms, like, One, they, they're heavily reliant on collaboration with the multistage firms to be kind of sources of capital for downstream rounds. And conversely, I think that every good multistage firm is humble about the fact that there will be companies that were either non-obvious to them or not visible to them that these seed firms, these seed firms will, will find and will be good partners to. And so I think for a multistage firm to alienate those seed funds and say, hey, we just don't want to work together at all would just be crazy. And, and, and, uh, I can tell you that none of the multistage firms that I know well Um, do anything but seek to be ver…

AI assessment note: “I think the answer is, is somewhere in the middle”

Q Yeah, I kind of agree with you there. Okay, fantastic. Who is an unsung hero in venture, do you think? You've seen many great operators in venture. You've worked with them. Who do you think is an unsung hero?

A Look, I think someone who's been very generous to me over the years is the person that actually hired me into venture. It's this guy named Mike Dauber, who's a partner at Amplify Partners, which is a wonderful new firm that's really, really gotten off to an incredible start, again, with focus on both early stage and these more deeply technical software businesses. Um, they've since branched out quite a bit, but what I can tell you about Mike is, is he, he is just an incredible mentor and he has imparted so much belief and wisdom on so many young people in this industry. And I think helped a lot of people gain the confidence and the, and sort of the clarity of purpose around like what it means to do this job well and why they're capable of doing it. And I'll be forever grateful for Mike for just always believing in me. Every time I've made a change in my career, every time I've had a tough decision to make, I've called Mike and he's really, really been someone whose feedback I value immensely.

AI assessment note: “It's this guy named Mike Dauber, who's a partner at Amplify Partners”

Q When you say optionality is your friend, I could take that in two ways, because I could say the market is unknown and the optionality is extended runway, and so actually raising a larger round will give you more at bats to enable you to have more goes at an unknown market. But I think you meant optionality in a different way of having a lower price, no?

A I definitely did. Um, sure, in the case where you feel like you're drawing dead, the, the ability to find a good home for the company and, and do good by your investors and your employees is, um, let's just say much easier to come by when you keep valuation down. And we all know how that works with, with corporate acquirers. I was once on a corp dev team, so I know that world very well. Um, but I think there is like another form of optionality where, If you really think that, um, the market opportunity or the range of outcomes that you're scaling into is so vast, keeping it, keeping it lean also allows you to say, hey, if this doesn't work, do I really have to spend, you know, the next four or five years of my life working on this thing that I'm not sure of, right? Like that time is so precious for great founders. And I've been in situations with founders before where it feels like they are kind of drawing dead and the market's not resonating the way that they thought. Sometimes I think having that extra, you know, two or three years of runway can actually be really, really punitive Given the opportunity cost associated with amazing founders time. So I really try on a personal level to be honest with them about look like, is this really what you want to be spending the next two or three years of your life doing? And I think if you go and raise too much money, sometimes you can …

AI assessment note: “I definitely did. Um, sure, in the case where you feel like you're drawing dead”

Q In such transient times, does market size matter at all? Or is it worthy doing market sizing work like traditional investors used to? Because we really don't know more than ever before.

A Yeah, I mean, the honest answer is it depends, right? Like in a case where I would say it does matter is if you're building, let's say you're building a cybersecurity company where the play is you have a better solution to something that already exists. You know exactly how much is being spent on that thing, and therefore your opportunity is to sort of go and capture as much of that existing spend on that thing and then grow with that market. There, I think market sizing really matters in terms of just being sober about the size of the opportunity and, and, and honest with yourself about the right way to build that company and capitalize it. I think there's this other case, though, where you're, where you're doing something fundamentally new, right? And if you're doing something fundamentally new, the act of sizing a market is just, at least from my experience, so imprecise That it, it borders on being a fool's errand, number one. Number two, I think you've heard many people say this, but I very much agree with it, that like the best founders, they, they're just so creative and have so much ingenuity in terms of their ability to essentially set the own, set their rules, right? And, and what, what I mean by setting their own rules is they get to decide what market they're playing in, and they get to convince customers that there's this market that they didn't really think about …

AI assessment note: “the honest answer is it depends, right? Like in a case where I would say”

Q clear, you beat the seed funds, because you just come in and buy it. I get it. We do three on 15, you guys come in and drop 10 on 50. It's, it's a market, fine, but I don't think that is good for the companies, and rarely do I see that play out well. How do you respond to that? Do you think I'm wrong? How do you feel?

A So I can tell you that I have been involved in Multiple situations where companies look back on their fundraising approach and say, Hey, we raised too much money at too high a price. And now the flexibility that's afforded to us and not just downside scenarios, but in some cases like base base scenarios is more limited than we'd like it to be. So like, I'm completely wide-eyed about the trade-off there. And anytime a founder I work with is thinking about going this path, like I try to have that honest conversation with him and say, Hey, if I were you, this is how I think about it. Right. Of course, there's a way that you can raise more money at less dilution, and if that's all you're thinking about, then that path may seem like the right path. But on the other hand, there are so many scenarios in which preserving optionality makes a huge, huge difference, and therefore keeping dollars in and your, you know, the value of your four or nine A or your, your post money of your last round as low as possible is very, very beneficial. So to me, it's like there are certain companies and certain types of founders that I think Are better off and very comfortable going the kind of, how do I raise as much money as, as efficient dilution type of price as possible. And then there are other founders who I think you really, really have to help them understand the downsides of that because they'…

AI assessment note: “I'm completely wide-eyed about the trade-off there.”

Q Do you buy that though? Cause I, I, Dylan always seemed to be brilliant. And across the board, like when you speak to John Lilly, who led the A at Greylock, like he was like, he was clearly brilliant. The company was not hitting, but like he was brilliant. Do you know what I mean? Yeah.

A I mean, I think, but I think you have a lot of very special founders whose companies don't work number one. And so you can say that about A number of founders and a number of companies, but I think you're starting to see more and more evidence of these companies that just took longer than people, than people thought, right? I mean, there, there are just so many now. It's not just Figma that I think you kind of have to stay open-minded to that. And there's another dynamic at play here, which is that I think that so much of the low hanging fruit has been picked off the tree in terms of like software businesses that you can build, that you're starting to see the most interesting companies be those where there's just something deeply technical, like a problem they have to go and solve. It's never been solved before. And I think in doing so that can take in some cases like multiple years to get it right. And so, you know, a recent example of this is Clay, right? Clay is this company that's growing very, very fast on the sales tech side. And if I'm not mistaken, it was like five or six years of, of very little to no growth before, uh, before it took off. And so I think you have to be open-minded to those outcomes. And I personally try to lean into those outcomes because I think sometimes if, if something takes many years to get right, assuming it's something deeply technical and R an…

AI assessment note: “I think you're starting to see more and more evidence of these companies that just took longer”

Q that listen, and they'll be going, great, great, this is getting good, but which camp am I in? Am I in the one that could raise more and should raise more, or am I in the one that should stay leaner and be more milestone driven and capital efficient? How would you delineate between the founders that should And should not raise those slightly large jumbo seeds versus normal seeds.

A So I think this actually kind of comes back to the market sizing question you asked, which is there are certain companies that have a very deterministic sense of their market opportunity. Let's say they're going and replacing something that already exists. You see this a lot in cybersecurity, for example, I think these kinds of companies, they, they understand the headroom and they understand if I get this much market share in this period of time, like this is how big my business can be and therefore how valuable it can be. With, with a modest degree of confidence. Where I get really conservative in terms of the advice that I give founders that I work with on fundraising is when companies are fleshing out a new market. Like, we just don't know. It could be really large. It could be non-existent. I can tell you that the cases where I've been involved with companies is, is where they've, where they've done that wrong is when they just didn't understand their market yet, right? And I think if you have a poor understanding of your market and there's a non-zero chance that that market could be very constrained, optionality is without a doubt your friend, and I'm very honest about that with the founders I work with.

AI assessment note: “certain companies that have a very deterministic sense of their market opportunity.”

Q four pillars of venture. And you said before about believing picking is more important than winning as a lead investor, which goes against what we just said, which is if the signals are clearer than ever, it takes less to pick the winner and it's more emphasis on winning. So I'm fascinated. Why do you think picking is more important than winning as a lead investor at a multi-stage firm?

A Yeah, so let's unpack this by first talking about, like, what it takes to win in one of these really competitive opportunities. Like, I feel like there's this sort of meme going around that it's all about, like, you know, famous VC picking you up in his helicopter and flying you to his house on an island, or the courtside seats at the Warriors or Knicks game, or the, you know, the Michelin star meal with the famous person joining. Look, these parlor tricks exist. Every firm engages in them. Um, depending on founders, like, they, they either respond positively to it or not. But ultimately what I've found in practice is that none of that stuff really matters. What matters is did you put the work in to develop a deep connection and a deep set of insights with that founder, their vision, and the company that they're trying to build. And that just takes time. And I think it takes time in the sense that every process I've been in that has been highly competitive, the winner, if it wasn't me, was the person that had been doing that work for the better course of a year. And I'll give you a quote a founder told me once when an opportunity didn't go my way. He said, You know, the person that I went with, they just had insights about the business that not even my existing investors had. And the only way to develop those insights is from spending time thinking about the business at the lev…

AI assessment note: “how this comes back to picking is you have to pick which companies and which people”

Q companies that were competitors when you were looking at a market, and you'd be going, ah, I need to analyze them, I need to understand them, I need to meet them, whatever it is. Now, there's 15, but often more. It feels like the competitive set for every company has exploded exponentially. Do you agree? And how do you think about that when investing in one determining ultimate value creation?

A So I would certainly agree with this. I think it's the single biggest challenge of, of making C and series A investments right now. Like let's take these AI app categories that we're meeting every day. For example, it used to be the case, as you said, there might be like one or two players that you'd have to pick between. And now there's, it's probably more like four to six. And so I can tell you like a, like sort of a recent example in an anonymized way. Like one of the most recent investments I made was in an AI app company. And I can tell you that we had been spending time with this team really since they'd raised a very small seed round. Um, and we had been really excited about the category, building a lot of altitude on it, but everyone's product was under development. So it was really hard for us to determine who had the best product. So, okay, that's fine. Then figure out who the best founder is, right? And there was a set of founders that had deep domain expertise in this area, but very light on the AI side of things. And then there was a set of founders that had very deep AI expertise and very light on the domain expertise. And I can tell you that, uh, we waited to pick the company that we, we pursued and we, we succeeded at pursuing an investment in the one that we wanted, but I can tell you the price was a lot higher than it would have been had we leaned in earlier, …

AI assessment note: “So I would certainly agree with this. I think it's the single biggest challenge”

Q How do you analyze that? What does it allow you that the other strategy does not focus, but does that increase your velocity to AGI?

A So I think the argument would be, and again, I can't speak for, for the founders of that company, but like the argument that I would, that I would make would be today. There are a lot of decisions that trickle into the R and D and research organizations of say an open AI. That are in service of helping them build better products in the short term, right? Like the model needs to behave a certain way, so ChatGPT can be better, or deep research can be better, or whatever it may be. There are for sure short-term optimizations being made there, and I've seen it with my own eyes when I talk to people that work at those companies. The argument for not getting caught up in that is you can just be entirely long-term. You can make bolder research bets. You can, you can allocate resources differently. You can maintain a smaller team that's more focused, as you said. So I think that's really the, the argument is like, Having to generate revenue and build a business that you can take public someday is, is, is going to come with short term thinking. And if you sort of say, hey, let's, let's assume we have access to capital that we need. And let's say we can just kind of sweep all that aside. What does that buy you? I think it buys you less distraction and more ambition.

AI assessment note: “I think it buys you less distraction and more ambition.”

Q What have you changed your mind on most in the last 12 months? Like, for me, 12 months ago, I was quite dubious, honestly, of OpenAI's long-term sustainability and enterprise value. Now, I think it's unwavering that there'll be a two trillion dollar company. Unwavering.

A So, I think for me, the thing I've changed my mind on the most in the last 12 months, specific to AI, is how to think about, like, the net revenue mix of companies like OpenAI and Anthropic. And so, Look, I remember when investors were considering, uh, participating in a thirty billion dollar valuation round for OpenAI. The question in the room was like, should we even value this ChatGPT thing as anything, right? Like, is it, is it worth anything? Or is it just a proof of concept to show what the model's capable of? And conversely, I think people were looking at these API businesses where they make the model available to developers and saying, hey, this is going to be like Stripe or Twilio or, you know, the next great API driven business. And I think what's happened in practice, I didn't anticipate Which is that it turns out that these API driven businesses are really, really tricky. One, you have this kind of a hundred X year over year decrease in prices per token. So you have like downward pricing pressure that is inevitable driven by the competition. Two is you have this like almost zero switching cost where let's say, you know, Claude releases a new, a new version of its model. And I think it's better and performs better against my evals. And I'm currently using open AI. It's not terribly hard in most application areas to switch to that model. So you have downward pricing p…

AI assessment note: “the thing I've changed my mind on the most in the last 12 months”

Q next generation of venture or the next decade of venture, do we play collaboratively together in it? And I mean this nicely, not conflictingly, but like, you know, I'm a, I'm more of a seed only manager. Um, I've got smaller funds, obviously, like do boutique seed specialists and these mega platforms play collaboratively or do the mega platforms bluntly just have a different cost of capital and eat seed?

A I think the answer is, is somewhere in the middle, which is that of course, multi-stage firms, By virtue of being multi-stage, they want to be first, right? That's where the generational returns get made, and we've seen that time and time again. If you look at some of the best venture investments in history, they've been these seed investments in these companies that have gone on to grow really, really large, and they've come from an investor who's continued to concentrate more and more capital in that company over time, so that they have a large amount of ownership at the end of the day. So that, that is where I think the competition lies, and that's obvious, right? But I, I also think that, like, look, the, the great seed firms, like, One, they, they're heavily reliant on collaboration with the multistage firms to be kind of sources of capital for downstream rounds. And conversely, I think that every good multistage firm is humble about the fact that there will be companies that were either non-obvious to them or not visible to them that these seed firms, these seed firms will, will find and will be good partners to. And so I think for a multistage firm to alienate those seed funds and say, hey, we just don't want to work together at all would just be crazy. And, and, and, uh, I can tell you that none of the multistage firms that I know well Um, do anything but seek to be ver…

AI assessment note: “I think the answer is, is somewhere in the middle”

Q fascinated by is like, you know, everyone always says, oh, enterprise adoption always goes basically much slower than you think. Fundamentally. But when you look at actually adoption cycles today, it would seem that's not the case. It would seem enterprises are adopting AI faster than they've adopted any other prior technology cycle. To what extent does the conventional wisdom hold that enterprises adopt slowly versus this is fundamentally different?

A So I think this is fundamentally different. And if you compare it to cloud, for example, adoption was fairly slow in the beginning, right? Kind of gradually, then suddenly. Here, I think the difference is that there's this broad-based consensus that Failure to embrace AI to the fullest extent as a company is just like existential to its existence. And I think if you start to kind of ask yourself, like, what does it mean for the entire industry to conclude that, like, if I don't adopt this technology, I'm going to be left behind. What you start to see is this like voracious appetite to go and adopt it at all costs in every nook and cranny of the business. And I think this honestly explains why you're seeing these companies grow faster than we've ever imagined. I think it explains why, uh, investors are so bullish on these app layer companies, Because they're going and talking to these CIOs and hearing things they've never heard before. Like I have to adopt this everywhere. I'm going to get fired type of urgency. So you're just seeing unprecedented appetite and urgency because of this view that if I don't adopt this technology, my company will perish. And again, I think that's just yet another reason why we're in this really, really unique point in time for entrepreneurs and investors.

AI assessment note: “So I think this is fundamentally different. And if you compare it to cloud”

Q Bucky, and I, you know, I just use this show to learn, but like where is sustainable value generated where we're not going to get crushed as an investor? Because you see now with open AI potentially buying windsurf, the desire to move into application layer, you see more and more advancement in the models moving into application. Where is sustainable value created and how do you think about that?

A So my mental model for thinking about this is actually quite similar to when we were asking ourselves when Amazon, Microsoft, Azure, and Google were rising, like which companies would survive that, right, as they were starting to get into multi-product. And I think what we saw in that era was that there are just so many categories of software that exist that require unique understanding of the customer pain points, unique resource allocation to build the best product, and really just like a set of insights that can only come from focus, that I think what we're going to see is a very similar set of dynamics play out here. So sure, in a core market like CodeGen or Maybe enterprise search, where, you know, you see companies like Glean being independent today, but, but OpenAI famously saying, hey, if you're an investor in Glean, you don't get to be an investor in OpenAI, which would foreshadow they plan to play in that space. I think what you're seeing is that there are some categories where these model providers are going to be very, very active, but I think what's so amazing about this point in time that we're in is that this long tail of applications is so long and so fat that it's hard for me to see how the model providers are able to play in Each of them. And so again, I think what's going to happen is that there will be startups and in some cases existing incumbent companies …

AI assessment note: “this long tail of applications is so long and so fat”

Q One of the reasons you have competition is because there's a finite number of people who can write such large checks. When we think about the universe of mega platforms, will that universe increase significantly in the next five to 10 years as we see outcome sizes expand? Or will that remain relatively similar, do you think, as LPs concentrate dollars into known brands?

A So I'm not an LP, but like you, I do spend a lot of time with LPs. And what I can tell you right now is that it's harder and harder for me to see how there are too many of these mega platforms that exist in the coming years. And the reason for that is one of, of commitment from the existing large pools of capital in the LP community, right? So if you're a, if you're an LP that wants to fund one of these efforts, You're really making kind of a multi-fund commitment, as you know, the sophisticated LPs invest with any manager for at least three to four funds, and they know that is the optimal way for them to capture that alpha because it's really hard to be, to be timing the market, as we all know. So I think if you sort of say, okay, in the backdrop, it feels like a lot of these big LPs have committed to these platforms. It's pretty hard to see how they can commit to too many more of them, just on the basis of the physics of how big they are and how much capital they've committed. So I think what's really, really interesting about this, this space that we're in in the market right now is like you said, There are these companies that can get really, really big and consume large amounts of capital and generate potentially outsized returns for investors of those large checks. But on the other hand, it doesn't appear as though the supply of, of capital from, from platforms like the o…

AI assessment note: “harder and harder for me to see how there are too many of these mega platforms”

Q In such transient times, does market size matter at all? Or is it worthy doing market sizing work like traditional investors used to? Because we really don't know more than ever before.

A Yeah, I mean, the honest answer is it depends, right? Like in a case where I would say it does matter is if you're building, let's say you're building a cybersecurity company where the play is you have a better solution to something that already exists. You know exactly how much is being spent on that thing, and therefore your opportunity is to sort of go and capture as much of that existing spend on that thing and then grow with that market. There, I think market sizing really matters in terms of just being sober about the size of the opportunity and, and, and honest with yourself about the right way to build that company and capitalize it. I think there's this other case, though, where you're, where you're doing something fundamentally new, right? And if you're doing something fundamentally new, the act of sizing a market is just, at least from my experience, so imprecise That it, it borders on being a fool's errand, number one. Number two, I think you've heard many people say this, but I very much agree with it, that like the best founders, they, they're just so creative and have so much ingenuity in terms of their ability to essentially set the own, set their rules, right? And, and what, what I mean by setting their own rules is they get to decide what market they're playing in, and they get to convince customers that there's this market that they didn't really think about …

AI assessment note: “the honest answer is it depends, right? Like in a case where I would say”

Q clear, you beat the seed funds, because you just come in and buy it. I get it. We do three on 15, you guys come in and drop 10 on 50. It's, it's a market, fine, but I don't think that is good for the companies, and rarely do I see that play out well. How do you respond to that? Do you think I'm wrong? How do you feel?

A So I can tell you that I have been involved in Multiple situations where companies look back on their fundraising approach and say, Hey, we raised too much money at too high a price. And now the flexibility that's afforded to us and not just downside scenarios, but in some cases like base base scenarios is more limited than we'd like it to be. So like, I'm completely wide-eyed about the trade-off there. And anytime a founder I work with is thinking about going this path, like I try to have that honest conversation with him and say, Hey, if I were you, this is how I think about it. Right. Of course, there's a way that you can raise more money at less dilution, and if that's all you're thinking about, then that path may seem like the right path. But on the other hand, there are so many scenarios in which preserving optionality makes a huge, huge difference, and therefore keeping dollars in and your, you know, the value of your four or nine A or your, your post money of your last round as low as possible is very, very beneficial. So to me, it's like there are certain companies and certain types of founders that I think Are better off and very comfortable going the kind of, how do I raise as much money as, as efficient dilution type of price as possible. And then there are other founders who I think you really, really have to help them understand the downsides of that because they'…

AI assessment note: “I'm completely wide-eyed about the trade-off there.”

Q When you say optionality is your friend, I could take that in two ways, because I could say the market is unknown and the optionality is extended runway, and so actually raising a larger round will give you more at bats to enable you to have more goes at an unknown market. But I think you meant optionality in a different way of having a lower price, no?

A I definitely did. Um, sure, in the case where you feel like you're drawing dead, the, the ability to find a good home for the company and, and do good by your investors and your employees is, um, let's just say much easier to come by when you keep valuation down. And we all know how that works with, with corporate acquirers. I was once on a corp dev team, so I know that world very well. Um, but I think there is like another form of optionality where, If you really think that, um, the market opportunity or the range of outcomes that you're scaling into is so vast, keeping it, keeping it lean also allows you to say, hey, if this doesn't work, do I really have to spend, you know, the next four or five years of my life working on this thing that I'm not sure of, right? Like that time is so precious for great founders. And I've been in situations with founders before where it feels like they are kind of drawing dead and the market's not resonating the way that they thought. Sometimes I think having that extra, you know, two or three years of runway can actually be really, really punitive Given the opportunity cost associated with amazing founders time. So I really try on a personal level to be honest with them about look like, is this really what you want to be spending the next two or three years of your life doing? And I think if you go and raise too much money, sometimes you can …

AI assessment note: “I definitely did. Um, sure, in the case where you feel like you're drawing dead”

Q four pillars of venture. And you said before about believing picking is more important than winning as a lead investor, which goes against what we just said, which is if the signals are clearer than ever, it takes less to pick the winner and it's more emphasis on winning. So I'm fascinated. Why do you think picking is more important than winning as a lead investor at a multi-stage firm?

A Yeah, so let's unpack this by first talking about, like, what it takes to win in one of these really competitive opportunities. Like, I feel like there's this sort of meme going around that it's all about, like, you know, famous VC picking you up in his helicopter and flying you to his house on an island, or the courtside seats at the Warriors or Knicks game, or the, you know, the Michelin star meal with the famous person joining. Look, these parlor tricks exist. Every firm engages in them. Um, depending on founders, like, they, they either respond positively to it or not. But ultimately what I've found in practice is that none of that stuff really matters. What matters is did you put the work in to develop a deep connection and a deep set of insights with that founder, their vision, and the company that they're trying to build. And that just takes time. And I think it takes time in the sense that every process I've been in that has been highly competitive, the winner, if it wasn't me, was the person that had been doing that work for the better course of a year. And I'll give you a quote a founder told me once when an opportunity didn't go my way. He said, You know, the person that I went with, they just had insights about the business that not even my existing investors had. And the only way to develop those insights is from spending time thinking about the business at the lev…

AI assessment note: “how this comes back to picking is you have to pick which companies”

Q like Bucky did. And so totally to your point, it helps you win. Can I ask you one, do you even need to pick, my friend? You're now at light speed. You can just wait. I mean, part of me as a friend would say to you, just wait until the C, pay up like Vince did at Thrive for the, you know, thirty billion round, and ride it, baby.

A Look, so that strategy can definitely work, but I would argue, and this is maybe world's smallest violin, that picking is actually much, much harder. In these larger firms that have notoriety in the market. And the reason for that is because the opportunity set that they have access to and the number of founders that are willing to lean in and work with them is just higher, right? And so you just have more inventory to choose from. And I think because you, you have a little bit of magnetism to you as a platform that a lesser known firm doesn't, you just end up having a lot more at the top of funnel to sift through. And I think if you're not very diligent about how you prioritize and manage that, picking actually can be like the failure mode of a lot of GPs at these funds.

AI assessment note: “Look, so that strategy can definitely work, but I would argue”

Q companies that were competitors when you were looking at a market, and you'd be going, ah, I need to analyze them, I need to understand them, I need to meet them, whatever it is. Now, there's 15, but often more. It feels like the competitive set for every company has exploded exponentially. Do you agree? And how do you think about that when investing in one determining ultimate value creation?

A So I would certainly agree with this. I think it's the single biggest challenge of, of making C and series A investments right now. Like let's take these AI app categories that we're meeting every day. For example, it used to be the case, as you said, there might be like one or two players that you'd have to pick between. And now there's, it's probably more like four to six. And so I can tell you like a, like sort of a recent example in an anonymized way. Like one of the most recent investments I made was in an AI app company. And I can tell you that we had been spending time with this team really since they'd raised a very small seed round. Um, and we had been really excited about the category, building a lot of altitude on it, but everyone's product was under development. So it was really hard for us to determine who had the best product. So, okay, that's fine. Then figure out who the best founder is, right? And there was a set of founders that had deep domain expertise in this area, but very light on the AI side of things. And then there was a set of founders that had very deep AI expertise and very light on the domain expertise. And I can tell you that, uh, we waited to pick the company that we, we pursued and we, we succeeded at pursuing an investment in the one that we wanted, but I can tell you the price was a lot higher than it would have been had we leaned in earlier, …

AI assessment note: “So I would certainly agree with this. I think it's the single biggest challenge”

Q this 50 customer call log to one of your companies that I've done? I want the first meeting. And you're like, you did 50 customer calls for a meeting? Or like, you did this 28 page market analysis for a first meeting? The cost of first meeting entry has gone through the roof, and so you cannot get that first meeting unless you've been at the pre-seed or the seed.

A Look, I would say it's possible if you make a very, very small investment in a company at the very early stages to use that as a wedge to build a compelling relationship with an entrepreneur. But it is by no means a given. I can tell you countless examples of where, uh, let's just say later stage firms or, you know, even just firms that weren't necessarily the lead investor in the early days did something, let's just call it low conviction, thinking they were going to get access where it just didn't serve them. So I think it really comes down to this kind of, at this point about picking once again, which is like, hey, if you're going to start doing that as a later stage firm, you've got to be committed to putting the legwork in to actually use that as a wedge to develop that relationship that does give you the access. Because I think The check itself does not. And so where this comes back to picking once again is like, let's say you do that a hundred times, which of those hundred are you going to put that work in with? Right. And so you have to have taste judgment and, and, and sort of an instinct for, as these companies are developing, like which of those do I need to, to really spend time with? And I think that goes for any investor at any stage, like, which is again, why I believe picking is more important than you do.

AI assessment note: “it's possible if you make a very, very small investment in a company”

Q um, signaling and the risk that comes with signaling. People go back and forth on it. I, I do see it impacting companies when you have your excels and your indices. Maybe this is more of a European thing, where the markets are kind of more consolidated, but your excels, your indices, lead a pre-seed or seed, and don't do an A. It kills companies. Do you agree or not?

A So what I'd say is that when a larger, let's call it multi-stage firm does lead a seed round and decides not to lead the next round, that is certainly something that like the next round of investors are going to want to understand better and think about and will sort of take as a signal. Like there's no doubt about it. I'm not going to deny that. I will also say that any seed investor competing with a multi-stage firm will go very, very out of their way to instill this Wild fear in the founder's mind about like the risk of that. And I can tell you that what I've seen in practice is that I don't think it's as much of a risk and perhaps I'm biased. I mean, I have worked at a smaller firm before and kind of been on that side of the fence. But what I, what I would say is that like when a firm doesn't want to go and do that Series A, it's really just the fact that the company hasn't necessarily achieved the milestones that they agreed upon with the entrepreneur in the early days for the company to be Series A ready. And so sometimes that's a downside scenario where let's just say like things didn't go as well as you'd hope. Maybe they took longer and you just have to go and raise because you have a runway issue. Um, but usually what I find is that it's like, it's just like the quality of the company at that stage and, and, and how they've executed against the milestones that they se…

AI assessment note: “I don't think it's as much of a risk and perhaps I'm biased.”

Q Can I ask what do most people believe about AI that you think is wrong?

A It seems like most people believe that this path to AGI is just this ever increasing upward slope. And again, I don't have strong intuitions on whether that's true or not, but my instinct is we should be much, much more open-minded to the possibility. That we could arrive at some form of plateau and still have an incredible outcome for society and an incredible outcome for entrepreneurs and venture investors. And so in a sense, you could say, hey, AGI is already here in certain pockets. Like there are, there are clearly things that these products can do that an army of the smartest humans in the world would never, ever be able to try, right? Now that we have test time compute, the same thing that brought us AlphaGo is sort of bringing an equivalent of that in all these different domains where unlike the human brain, these AIs can just try 100,000 of different paths to get to the best possible answer, whereas we kind of have to think about the best one. So in a sense, like, humans are still predicting the next token, whereas I think that these models with test time compute infrastructure are able to figure out, you know, how can I try this a thousand times and then decide what the best next token is, right? And so I think as a result, like to me, AGI feels like it's here in a lot of ways, and even if we were to kind of say, hey, the capabilities that we have today are, are it, a…

AI assessment note: “most people believe that this path to AGI is just this ever increasing upward slope.”

Q Many people have said to me on the show before, like Nabil at Spark, who's a co-investor with you in, in Anthropic, the age of spreadsheet investing, it used to work for the last decade of enterprise SaaS. It no longer works in this next generation. Do you agree with that? Or bluntly, is there still hope for spreadsheet investors in the next decade?

A I would say that I think the, the window that spreadsheet investors have to gain access to these companies is just a lot narrower in the sense that These really, really blue chip companies that are wielding AI in some interesting way, for example, let's say again, they're building some kind of an agent that is going after a large existing pool of labor and automating that. They're just raising so much money early before there is a spreadsheet that one's ability as a spreadsheet investor to get exposure to those companies at the kind of entry price and stage that they're used to, I think is changing a lot. And so my view is that these spreadsheet investors are just going to keep getting pushed later and later stage. And again, I think the book is still being written on whether that's a good thing for the industry. Um, but what I would say is that there's just, uh, so much conviction amongst top investors at the early stages for companies like that, that, uh, you know, they're just, they're just willing to take more risk.

AI assessment note: “the window that spreadsheet investors have to gain access to these companies is just a lot narrower”