The Exchanges

Q bit. I'm not seeing that. I'm seeing multi-stages come in harder and harder, not wanting to deploy series A and B checks. I'm seeing more and more rich tech execs wanting to angel invest. I'm continuing to see more and more people raise funds or start to try and raise funds. Pricing hasn't corrected for me. Am I in a world of my own, or are you seeing something different?

A So it is starting to ripple its way back from the public markets to the later stage rounds and from there to the mid stage rounds and starting to ripple earlier. Uh, I think what you're seeing are more capital efficient businesses and business plans being built, which I think is a fantastic thing for the industry. You know, so they're asking for slightly less capital, um, because they can't invest in multiple S curves at the same time. Uh, and I do think that the correction is occurring. It's just happening slowly because a lot of insider rounds are happening in order to extend companies to earn their way into their valuations while we go through this scene. You know, what I worry about if there isn't a correct correction at the earliest stages is that, you know, the de-risking of businesses and the building of businesses is a multi-stage game. And just because it's healthy for the first move doesn't mean that it sets you up to make the other moves well. And if pricing doesn't correct at the earliest stage, um, you're going to have a lot of no bids, you know, at the Series A because they wouldn't have gone far enough, fast enough for a Series A investor to come in and say they've earned their way into a significant increase in valuation. And what a lot of founders don't realize is that venture capitalists, a lot of them, would prefer to give a no bid Then to deliver the bad new…

AI assessment note: “and I do think that the correction is occurring. It's just happening slowly”

Q bit. I'm not seeing that. I'm seeing multi-stages come in harder and harder, not wanting to deploy series A and B checks. I'm seeing more and more rich tech execs wanting to angel invest. I'm continuing to see more and more people raise funds or start to try and raise funds. Pricing hasn't corrected for me. Am I in a world of my own, or are you seeing something different?

A So it is starting to ripple its way back from the public markets to the later stage rounds and from there to the mid stage rounds and starting to ripple earlier. Uh, I think what you're seeing are more capital efficient businesses and business plans being built, which I think is a fantastic thing for the industry. You know, so they're asking for slightly less capital, um, because they can't invest in multiple S curves at the same time. Uh, and I do think that the correction is occurring. It's just happening slowly because a lot of insider rounds are happening in order to extend companies to earn their way into their valuations while we go through this scene. You know, what I worry about if there isn't a correct correction at the earliest stages is that, you know, the de-risking of businesses and the building of businesses is a multi-stage game. And just because it's healthy for the first move doesn't mean that it sets you up to make the other moves well. And if pricing doesn't correct at the earliest stage, um, you're going to have a lot of no bids, you know, at the Series A because they wouldn't have gone far enough, fast enough for a Series A investor to come in and say they've earned their way into a significant increase in valuation. And what a lot of founders don't realize is that venture capitalists, a lot of them, would prefer to give a no bid Then to deliver the bad new…

AI assessment note: “I do think that the correction is occurring. It's just happening slowly”

Q Jason Frank, do you agree in terms of YC's days being challenged as ground zero for kind of factory line formation?

A Look, I mean, YC has a track record. It has a brand. It has a lot that, uh, I would say is a feeder to a lot of funds. In fact, they rely on YC, you know, for their deal flow or at least a portion of their deal flow. And we find that some of the things coming off the factory, uh, the hygiene about how they were built and what they learned during their period in the factory wasn't necessarily the things or the order that they should be learning. You know, they weren't set up in necessarily the right way. A lot of the growth trajectory was in unscalable things in order to get the up and to the right, 45 degree chart so that you can package it for demo day. You know, so there are a lot of artificial things done in order to package it, like, um, you know, to Sam's point, it will come off the factory all looking the same. And a lot of that advice you actually have to undo, you know, if you end up funding the company. So you end up overpaying and then having to undo a bunch of the damage. You know, that was done by setting up the company in the first place in the way that they got their early results. So I, I just worry about, you know, are the companies actually getting the proper advice for the industry they're in, um, you know, from a generic factory doing hundreds of businesses a year.

AI assessment note: “I just worry about... generic factory doing hundreds of businesses a year.”

Q When you've bent your own rules on price, have you subsequently been pleased and they have turned out to be the best deals, or have they not, and you've actually gone, we did pay too high a price?

A For a lot of the companies that, you know, we ended up paying up for, so far, so good. They were the ones that we stretched. They were the companies that had massive momentum on their side. Extraordinarily high growth companies are hard to figure out what the right price is because you're staring at a plan and you're looking at trajectory of the company and momentum that they have. And the plan is almost unbelievable. Speed with which companies can grow today are so far beyond the speed at which they were able to grow in the past. When I first started in this industry in 2008, You know, the best companies would grow by two X year over year. And now you're looking at companies that between the signing of a term sheet and the final documentation, a company could have doubled or tripled.

AI assessment note: “For a lot of the companies that, you know, we ended up paying up for, so far, so good.”

Q When you've bent your own rules on price, have you subsequently been pleased and they have turned out to be the best deals, or have they not, and you've actually gone, we did pay too high a price?

A For a lot of the companies that, you know, we ended up paying up for, so far, so good. They were the ones that we stretched. They were the companies that had massive momentum on their side. Extraordinarily high growth companies are hard to figure out what the right price is because you're staring at a plan and you're looking at trajectory of the company and momentum that they have. And the plan is almost unbelievable. Speed with which companies can grow today are so far beyond the speed at which they were able to grow in the past. When I first started in this industry in 2008, You know, the best companies would grow by two X year over year. And now you're looking at companies that between the signing of a term sheet and the final documentation, a company could have doubled or tripled.

AI assessment note: “For a lot of the companies that, you know, we ended up paying up for, so far, so good.”

Q Jason Frank, do you agree in terms of YC's days being challenged as ground zero for kind of factory line formation?

A Look, I mean, YC has a track record. It has a brand. It has a lot that, uh, I would say is a feeder to a lot of funds. In fact, they rely on YC, you know, for their deal flow or at least a portion of their deal flow. And we find that some of the things coming off the factory, uh, the hygiene about how they were built and what they learned during their period in the factory wasn't necessarily the things or the order that they should be learning. You know, they weren't set up in necessarily the right way. A lot of the growth trajectory was in unscalable things in order to get the up and to the right, 45 degree chart so that you can package it for demo day. You know, so there are a lot of artificial things done in order to package it, like, um, you know, to Sam's point, it will come off the factory all looking the same. And a lot of that advice you actually have to undo, you know, if you end up funding the company. So you end up overpaying and then having to undo a bunch of the damage. You know, that was done by setting up the company in the first place in the way that they got their early results. So I, I just worry about, you know, are the companies actually getting the proper advice for the industry they're in, um, you know, from a generic factory doing hundreds of businesses a year.

AI assessment note: “a lot of that advice you actually have to undo, you know, if you”

Q No, I totally get you there, and that makes sense. Karis, do you think we're looking at loss rates in the right way? Like we mentioned there about kind of the challenges of picking in the right levels of diversification. How do you think about loss rates and whether this generation is completely skewed in terms of the mentality around loss rates and graduation rates?

A Yeah, I mean, Look, I was looking at some data from Crunchbase just to, uh, figure out like what percentage of the entire venture world ends up becoming public companies, right? Which is a, at least a way of drawing a line and saying, these are real companies and these are real outcomes, you know, versus the smaller outcomes of a couple hundred million dollars or aqua hires. And it ends up that, uh, if you go back the past 20 years or so, it's, it's a single digit number, right? And in fact, for some vintages, that number is two percent, for some it's three, some it's four. But it's not eight percent or 10% of companies end up becoming public companies. So what you're really looking about is call it a one in 50, you know, has the potential to actually execute against the plan, be in a space that's big enough to create the type of outcome the industry actually cares about. And again, I'm not disrespecting the smaller exits or to Sam's point, you could actually get a fantastic return. If a company on three million dollars could become profitable and you end up selling it for three hundred million, like that could end up being an amazing return. But in the venture world in general, like you need an IPOable event or a mega sale, you know, of the variety of a honey or a credit karma to kind of make things work. And it's, it's just small.

AI assessment note: “what you're really looking about is call it a one in 50”

Q No, I totally get you there, and that makes sense. Karis, do you think we're looking at loss rates in the right way? Like we mentioned there about kind of the challenges of picking in the right levels of diversification. How do you think about loss rates and whether this generation is completely skewed in terms of the mentality around loss rates and graduation rates?

A Yeah, I mean, Look, I was looking at some data from Crunchbase just to, uh, figure out like what percentage of the entire venture world ends up becoming public companies, right? Which is a, at least a way of drawing a line and saying, these are real companies and these are real outcomes, you know, versus the smaller outcomes of a couple hundred million dollars or aqua hires. And it ends up that, uh, if you go back the past 20 years or so, it's, it's a single digit number, right? And in fact, for some vintages, that number is two percent, for some it's three, some it's four. But it's not eight percent or 10% of companies end up becoming public companies. So what you're really looking about is call it a one in 50, you know, has the potential to actually execute against the plan, be in a space that's big enough to create the type of outcome the industry actually cares about. And again, I'm not disrespecting the smaller exits or to Sam's point, you could actually get a fantastic return. If a company on three million dollars could become profitable and you end up selling it for three hundred million, like that could end up being an amazing return. But in the venture world in general, like you need an IPOable event or a mega sale, you know, of the variety of a honey or a credit karma to kind of make things work. And it's, it's just small.

AI assessment note: “if you go back the past 20 years or so, it's a single digit number”