The Exchanges

Q confidence of a lot of folks in the next Figma being relatively valuation. I mean, I wish I had the data from this YC class, I'm sure it's down, but I bet it's pretty good. I bet the valuation, I bet there are plenty of people that were thrilled to write twenty million, um, post safes in very risky early stages and have no qualms, right? No qualms at all.

A I do think some of that speaks to, um, like what we called, like, we derided them as tourist VCs, um, and that's not very respectful, so I won't use that term, but Um, I think there are a lot of people who have not seen cycles before in the industry right now. There's a lot of, like, basically, as these funds got bigger, they had more fee income. And so they could feed more mouths. And they would hire younger people and say, you have a checkbook. Like, you don't have a big checkbook like I have. Like, you know, the part, the general partners could write 20, 5000, hundred fifty million dollar checks. The younger people are given checkbooks to write A two million dollar check. A four million dollar check. That way if they don't work out and you let them go, you're not actually losing that much money. Um, and it's kind of like training wheels for the next generation investors. And so a lot of those folks have not seen cycles. They only understand the world we've lived in for the past three to five years. And so for them, going from a seed that was at 50 post to a seed that's at 25 post is like, cool, it's like a bargain. Um, but they don't realize that things are still going down. Um, and so I think we're still in this adjustment period.

AI assessment note: “a lot of those folks have not seen cycles. They only understand the world”

Q Yeah. So, so I know we're processing it, but there's been a lot of, um, negativity in venture the last couple months, right? Does this, how does it change what you think?

A I wouldn't say negativity, but obviously like prices of, I mean, obviously the public market is the tail that it wags the private market dog. Right. And so, and it's not, it's interest rates. Right. And also like the pandemic, like, you know, we pumped a lot of money into the economy during the pandemic. We bought a lot of software during the pandemic. You saw things like zoom go crazy. And then everyone's like, oh, I'm just like zoom. I also should be able to grow at that rate and trade at that multiple. Right. And that's just, that was like a false assumption, I think. And I think. It's kind of crazy now, looking back at it, that we didn't think, oh, this is a pandemic bubble in some ways, but clearly there was just a lot of stuff that is not going to be like it was a year and a half ago. Um, and so, yeah, I mean, I think every venture investor, if you, like, raise your hand if you're a founder or if you're a CEO. Okay. Um, raise your hand if you have a board. Okay. So we're going to dish a little bit on like what's going on behind the smiles at your board meeting. Um, because a lot of people are sitting on super overvalued investments. Um, and depending on what price they paid and what's in their portfolio, they are super stressed out right now because they don't see a path for their portfolio companies or a chunk of their portfolio companies to grow into the last round valu…

AI assessment note: “a lot of people are sitting on super overvalued investments... they are super stressed out”

Q And some will even say 20, yeah, 2014, 2016. They'll do, they'll do some of these. Um, So I want to go on to the next point, but to wrap this up, is this, I know we're processed in real time, do you think this will create more optimism, especially in growth in later stage? Doesn't it almost have to create a little bit more optimism?

A Like, I think, look, I think it's, yes, uh, this is what we all aspire to, right? A lot of founders and investors aspire to this, and, um, you just gotta, look, you gotta pick an industry that ideally has a non-cloud native incumbent, That is worth a ton of money, right? Like they had it, he had an incumbent that had a hundred billion dollar market cap that has what? 40% EBITDA. It's like an incredibly profitable, uh, segment to be in, and they're not a cloud native company, right? They've tried really hard to get into cloud, but they have this massive open flank of a competitor that's cloud native, um, that is beloved. Um, so if you can pick, I mean, there's tons, I mean, that's another thing we do all the time at Cowboy is we analyze like, What categories have really old slow moving incumbents where people don't really like the product? That's a great place to build new software.

AI assessment note: “I think it's, yes, uh, this is what we all aspire to, right?”

Q It didn't feel that way last year, did it?

A It's still not, I mean, even the people who are, who, who are running the companies that are worth five or 10 would not tell you that it's easy, right? It's crazy stressful. You have to be really lucky. A lot of things have to break your way. Um, and so I guess we're going back to that place where there's going to be less unicorns every year. I do think next year, like when we, when we did the original unicorn analysis, we looked at kind of vintage birth years, and like what were the best years to start or found a unicorn, and generally downturn Years are the best years. Um, I think just, you know, you got to be more committed to your idea. You know, it's going to be hard. It's not a get rich quick path. Um, and so I think that is kind of imbued in the culture of the company and in the hustle and the scrappiness of everything you do. So I do think next year is going to be like from a venture perspective for us, next year is going to be incredible vintage year.

AI assessment note: “It's still not, I mean, even the people who are running the companies”

Q They're not sleeping now when now, but, but of course VCs have multiple bets found, you know, this is the classic dichotomy. I only get one bet and these, my, my VCs and Jackson hole or wherever they're in Europe, they get to make 20 or 30 bets. Why, why are they stressed if, because they've got a figment in their portfolio. Why are they stressed?

A I mean, figment is a, well, we were talking about this earlier, right? Like, I mean, it is the, um, It is the thing that you want as a venture investor, right? It's the one thing that's going to drive your entire portfolio. And I think there are a lot of really interesting lessons about that story, right? One is like for the first four years of Figma, maybe the first five people really laughed at it and looked at, at the venture investors and this company that had not shipped a product for two years. And then they shipped a product and no one was really using it and people said it sucked. And then they had basically like shipped another release and everyone said it sucked and laughed at the venture investors and the people working there being like, They're chasing a windmill. This is never going to turn into anything.

AI assessment note: “for the first four years of Figma, maybe the first five people really laughed”