The AI Boom Will Create Enormous Roadkill: Who Wins & Loses? | David Frankel Transcript

00:00 You've got this narrowing out in venture where the bigger you get, it becomes like a pyramid. If you miss the $3 trillion companies, you're much harder to sell. This may just be another Uber, another Sunno, another Shield AI. David Frankle is one of the best from Founder Collective. He's in Uber. He's in Pillpack and SeatGeek and many great names. It's incredibly hard to move to a second wave, the wave of AI.

00:24 The dude is in the seeds for Shield AI for Sunno, which now worth $5 billion. He has moved so seamlessly from a pre to a post AI world in a way that very few seed ambassadors have been able to. This was an incredible discussion with one of the true craftsmen of seed investing today. Are we headed for another crash? Definitely. If is not a question. When nobody knows.

00:47 Ready to go. >> David, last night you sent me an email, a forwarded email, and it was my first ever email to you 11 years ago. >> 11 years. >> I can't believe that. Yeah. Uh, do you know what I found so funny is I just had dinner last night with Mimoon and I look at the people who've been kindest to me, which is you, Mimoon, Josh Kushner, Neil Mater, and it's just fascinating that the people who were there when there was nothing are also the greats.

01:29 >> And it's like maybe that's what made them great, that they give time to people where they just believe with no reason to. Does that make sense? >> I'm honored to be included in that list. But but maybe some of the thing is they're like they're intoxicated and you were intoxicating in my view like there's you know you were 19 years old but you were full-on focus energy like you you just brought it right and I think maybe part of the job and part of the fun of the job is just like recognizing that it's not all it

01:58 takes but but you kind of you had it. You have it. >> That's super kind of you to say in terms of like having it. Obviously, we both play at the early stages and I've said before on social media and on X that the hardest part of the market is seed in many ways and the worst performing funds will be the 50 to$100 million funds. I say this to explain because you're too big to be collaborative to write those 100 to 250k checks and be a friend, but you're too small to lead a$ 8 to $10 million seat round.

02:33 Why am I wrong? And why will this vintage be great for those funds? Okay, there is so much to unpack here. Look, you've got this narrowing out in venture where the bigger you get almost like it becomes like a pyramid. Like I think there is a the business of venture which is asset management and this channel, right? So, you've got the Cambridge Associates and you've got the um Fund of Funds and all they're doing is selling access and they're they're fine with it.

03:14 And if the you name it, top 10, top five names are not in XYZ great company and I would say at this point if you're not like in the top five, if you miss the at a certain level, if you miss the $3 trillion companies, right, like you're much harder to sell, right? And so so it's not trillion dollar robust, but like if you look at the numbers over the last 25 years of how many companies were created that are over hundred billion dollars and the numbers are like there were less than a hundred companies over the last 25

03:47 years, less than a hundred that are sustainably over 10 billion companies. So you've at that top end, you've got to be in that. The median company, we've done a lot of work on this very recently, but the median of the top 500 companies created in the last 25 years, the median is 2.6 billion. Now, if you own 5% of one of those companies, you return the fund each time.

04:14 And I would say what's gone on in seed is like there are whole bunch of unreasonable bets being taken with loads of funds and loads of money. And you know, it's quick, right? because you know you've got to get the check in because you got to get to the next fund. It's so it's incredibly tough at seed. What's what makes this still a great business is it's a little bit of what I said about you is you can wait and wait and wait and wait if you're patient and then you just see someone, right?

04:44 You see a founder or you see a team and you just go, I have to be there, right? And to me, that's code for this may just be another Uber, another Suno, another Shield AI. And I think a little bit, I'm I'm answering this personally, a little bit of this is a drug, right? Is like, you know, finding Harry. Finding that is a bit of a drug. So I, you know, addicted if that's the case.

05:09 And I think that that if you're in early, um, you still have a chance of returning a fund. I think it's a to it's a totally different business. And by the way, do you have to be the full $8 million? Definitely not. We can't be. Can you write a $3 million check? Can you write a half a million check? Now, valuations, uncapped notes, that's changing the business.

05:34 But you don't just have to do that. So if you're if you're on pie and I would say if you're on pie for the last I've been doing this for 18 years nearly is it was always expensive. It was always tough but you find some of the best people off pie always. Can I ask you on those rounds when you look at the 8 to 10 million rounds or the the large seeds that we see today are you able to participate though with the two to three million when you have your the multi-stage products provide such an efficient seed product that

06:07 actually you might get 100k but being a 3 million check is much harder are you able to even do that strategy you know I I hesitate to say this Harry but I think we're we're being seen and I'm I could be overextrapulating the last 20 deals that we've been involved in almost as an insurance policy where we're side by side. We're putting in 500k or a million.

06:29 There's been 8 $9 million going in and there's from the smart entrepreneurs there's almost this knowledge of they may abandon me and then having FC in my back pocket could be useful. >> Sure. >> And I'll use their brand, right? I'll use their I'll use their distribution network to go out and say they actually don't suck, right? They're not, you know, we're not doing 10 million ARR yet, but like they're more patient and be patient and we're the testimonial sales person.

07:00 So, I think there's some recognition of wow, for $500 or a million dollars, not a bad insurance policy. >> Totally get that. So, that's the 8 million round and that's at 40 if we >> No, we're doing we're not doing that many $8 million rounds. We're still finding three $4 million rounds. >> Are you? >> Yeah. Yeah. The valuations there move a lot, right?

07:21 They change a lot. >> By the way, the other thing is there's very little evidence yet that these hot hot AI companies that are raising huge amounts of money are capital efficient, right? They're anything but capital efficient. There's like the jury's out on whether that's going to work still. Totally get you. Just before we move away, you said it's not in the hot hot hot.

07:46 You often don't get paid for being a value investor and you can sometimes be criticized for being smarter than the market or whatever contrarian you want to say. My question is like I we do think about like is this an asset that will get financed in future funding rounds and if it's not an AI and it's a traditional enterprise HR company, dude, I can't get that funded for a good A.

08:08 Does that impede your thinking on whether you'll do the seed? Well, look, everybody's AI, right? Like, it's almost like saying that you're not AI today is like I'm not using the internet, right? It's like, why wouldn't you use the most contemporary tools? So, everyone's AI. You've just got different approaches where you've got a second time entrepreneur that goes, I know this domain really well.

08:29 I've been uh doing SAP consulting for, you know, 10 years or 20 years, SAP, and I've built a platform, but this part still sucks. And I was playing around with Claude code. This is a real situation. I was playing around with Claude code. My CTO is playing is is unbelievable. We're now putting four five together. Will you be will you be involved? And it's a 20 million cap.

08:53 >> Sure. >> Right. We see lot we see loads of that. So the the concept of it's only a 20some you I'm not saying we don't do that. I mean you know very well we do that all day long. But we also see other startups in places that feel off-piece and then you look at and it's got it's worth tens of billions of dollars this time. >> The statement that is said to me more than ever is price matters less than ever because the only thing that matters is in that you're in the true winners of the day.

09:21 How do you feel when you hear that? >> I mean the the scale of how much you have to win right is different based on your price. It's pure math. So uncapped notes suck at the seed stage. Yeah. >> I'm not saying we've never written one. Like unfortunately I've written one and I'm I think the founders are exceptional. I think they'll do great. >> Do you regret it?

09:46 >> I don't regret it at all because I love the relationship. But financially, you know, will we do as well there? That's going to be a$1200 million price when it's when it happens. Now you in a year in advance and you take that price from a venture perspective it doesn't make much sense >> and access is being sold right the IVs Stanford's done this forever but MIT and Harvard doing the same thing it's like you just want to be there right sometimes you really have to think that through and we've said no plenty >> but

10:19 we'll probably regret the ones that we said no to >> we see YC really professionalized startup founding in a way that it turns it into almost a norm for people leaving some colleges in particular and some programs at certain colleges in particular. Do you worry about how almost easy it is to be a startup founder today in terms of that normalization of it and what that means for what we do?

10:44 >> I I do. >> Yeah. >> I think there are so many founders, right? It's like dour. I think there are fewer entrepreneurs and when the tide goes out, everybody goes, I knew, I told you so. and nobody knows when the tide goes out. But what it takes to be an entrepreneur is just it's just very different in terms of fortitude, in terms of the ability to energize, the ability to go up that learning curve.

11:12 The number of times I've seen the difference in the trajectory between the CEO and the CTO. The CTO at some point up to 50 people, you're golden. And then at some point you go, actually, we could bring in better better technical skills. And if you've got a good co-founding CTO, that person becomes like a Swiss army knife and is deployed in different ways, the CEO goes on this serious journey, right, where the learning curve is steep and they've got to learn to manage and they've got to learn to put bums on seats.

11:43 And I think of people like TJ at Pullpack or Jack at SeatGeek. And they're changed individuals. I had uh coffee a week ago. We had an hour u Mikey Mikey Schulman from Sunno and I said what are you doing and he said I'm 30 40% of my time I'm just recruiting. I had lunch years ago decades ago with Jeff Bezos. I was invited to a lunch and someone smarter than me said what do you spend your time doing?

12:14 And he said 50% of my time is bums on seats. That's never left me. That's the CEO journey. That's the entrepreneurs journey. And there many founders that don't cut that. >> I think one of the biggest mistakes that I see investors make though is when they turn down a company because they don't like the other co-founder. And the truth is the other co-founder is most often not there in 3 years.

12:38 You don't like them because you don't think they're good enough and not as good as the CEO. Will you invest if you think the CEO is amazing, but you don't think the CTO is up to scratch or the head of sales who's also the co-founder isn't as good? What are your lessons on that? >> Rarely. We do that less. And I think your logic is correct. But so early on, we're looking for this package.

13:02 I'm looking for this CEO CTO kind of magic. And in some ways, I literally use that word like I'm looking for the CTO to be a bit of a magician and the CEO to be a good salesperson. That's like my favorite combo. And I agree with you. the CEO being a good salesperson and being a real entrepreneur is actually more important because the CTO role can be funible depending on how complicated it is.

13:30 But I have said no more times than yes in those situations and I regret some of them. But the the dynamic between th those founders matters early on. Like to me, I look at the dynamic and in some ways I think I want to replicate the partnerships that I've loved and go I'm looking for some kind of alchemy here. You don't have to be identical. You don't have to finish each other's sentences.

14:00 In fact, I prefer that you were different. But how aligned are you and how much you trust each other's kind of competence and go and in a career I've seen alchemy maybe one hand you know one like five times four or five times but when that alchemy happens it's because of that interplay between those two people. So I'm watching that pretty carefully.

14:26 Has the type of founder that you like changed especially in the last few years? I think our team has definitely oriented much more towards like deeply engineering specific people who come out of deep mind who come out of Gemini or has that changed less than you'd think h so I would say the youth the energy the focus the smarts you put that package together and it's an intoxicating package >> I look at experience and I So what are we going to need to package with that experience?

15:02 There are certain situations SAS and enterprise SAS certainly looked like that where you know you learned the lessons you understood the market you understood like who the buyers were although that's very fluid too >> but did you have the focus and the energy and I see these 20somes and it's a psychoraphic in a way so I'm not saying that I don't want to sound agist the psychoraphic of that focus and intensity can last for decades But there's something about it at that early stage that is just wow I want to be part of

15:38 that and that still turns me on a lot now the theory of you know the relationships etc go one more time is it's great in theory but man you need to go this journey you need so much energy when we look at the scaling journey and we said about kind of how founders have changed that in terms of what we look for or not changed for you one thing for me that's changed and I I get in so much trouble for this and like VC Brags, this Twitter account, killed me for it the other day.

16:08 Um I very candidly said I turned down a company the other day that went from 1 and a half and they were going to go to five and then they were going to go from five to 15 and it's just not enough anymore. It's it's just not interesting. I'm sorry for venture. We have an opportunity cost of capital where we can deploy and that's not fast enough. Has triple triple double double gone?

16:32 Is that still a venture path in today's landscape? >> 1 and a half to 5 billion to 1 and a half to 5 million era and then 5 to 15. >> And so you're looking at this company going okay you're going to be 1 and a half to 5 5 to 15 to 30 David 4 5 years down we might be at 70. I mean like is that still a venture pathway? >> You know these 10-year funds are taking 18 years.

17:07 The one thing you learn is loads of patience. There's no to me it's such an opportunity when people go it has to be 1 and a half to 10 to 15 and then reality sets in and sometimes it's twice as expensive and it takes twice as long. Harry, we still own every last share in SeatGeek. That was an investment I made in 2010. It's become it's in the top three ticketing businesses in the world.

17:36 It just takes a really really long time. some of our greatest companies. They were showing tremendous promise. But that one and a half to 10 to 20 like I just think are they executing and and and by the other the other side is is revenue the only metric right sometimes there is traction on dimensions that the market is not necessarily recognizing but you're an insider so so that account the retention in that account is really good and that one account's now spending 4x what they spent a year ago and they're more da and

18:12 So there's got to be traction and frankly a lot of what we do to try tell an entrepreneurial story to get more funding is the different dimensions of traction. But I think this like go go go overnight or you you're bust. I think there's a lot of orphans out there for that. And sometimes, frankly, I look at like those funding rounds and they're called seed plus or seed extensions and I go, that may be the opportune moment.

18:42 Like when they're being abandoned and they can't get the capital because the bigger funds have moved on, maybe that's the opportunity. It's not what we really do, >> but I can see it as a capital markets opportunity. >> Do you remember Bullpen where it was like their business to do exactly those rounds? I always thought that was an interesting business.

19:00 I don't know how they've done, but they priced those rounds. They they priced them for bigger bigger players. >> I think the thing is you're so paid for the risk that you're taking there. I mean, they really were aggressive in terms of ownership that you need I think they did Ipsy which was a big business and so you have one and it pays for the rest.

19:17 Um can when you look at this David you've been doing this for 18 years and you hear people like me say oh one to five like triple triple double double's dead. Is it really a home run? If it's, you know, we need a billion dollars in revenue, Jason Lmin says on our show, billion valuation. Come on, that's not venture anymore. Is this like peak bubble?

19:39 When you review the 18-year journey that you've had, the historical or anacronistic view on this would be the bubbles get bigger. This is the wave of our lives. I feel that way by the way. If I look at, you know, internet, SAS, mobile, AI, nothing looks the same. And will there be roadkill from this wave? Oh my god, there's going to be a lot. You know, again, you look at those stats of 500 companies, less than 100 over 10 billion the last 25 years.

20:10 How many times, Harry, over the last 11 years have you heard this is different? This is different. It doesn't mean that there aren't survivors and companies that are going to change the trajectory of technology forever. And I think in, you know, open AI and anthropic and SpaceX, we're seeing that already. Like these are the metas and the Googles of our era.

20:30 Highly likely. But wow, like it's Hollywood, man. Like 95% are not going to be there. And it goes back to why is seed interesting? Like I don't have to be in the one, right? Like if there were five companies so of that that are worth $5 trillion literally you go SpaceX I mean I'm not even including I'm saying like um with exits so if you look at SpaceX Tesla Meta that's trillions of dollars already you take then Nvidia I think Nvidia started pre25 years ago but even if you look at the last 25 years ago you can add

21:10 Palanteer to that PaloAlto networks that's about $5 trillion of market cap And then the the other 495, right, at a 2.6 billion average. And some of those are, you know, we hope everything looks like Shield AIO. But if you have 5% of a 500 million, if you have a 5% of a $2.6 billion outcome, you've returned your fund. If you have a $500 million outcome, it's incredible still.

21:37 And that's why I think seed isn't dead. I think seed is crowded and to some degree very commoditized. I feel commoditized. I've said this many times. I feel like brand and in some in some regard distribution as in your portfolio and people saying nice things about you get you to the table. >> But if it's commoditized, does price not just become the separator?

21:59 And if price is the separator, the mega platforms win. >> Well, the problem is the mega platforms are taking call options. So, is this good for the mega platforms? Is this good for the LPs? Or is this good for the entrepreneurs? Well, probably for 95% of entrepreneurs, it's not good. Why? You get more I'm I agree with you, but I'm just playing devil's advocate.

22:22 You get more money at a higher price with mostly a more junior VC who will let you do your work and not get in the way. Isn't that what all entrepreneurs want? >> I mean, sounds amazing, right? >> Yeah. The more junior entrepreneur moves on, right? you're offended and it's like >> more junior in venture investor you mean? >> Yeah. >> Yeah. Sorry. >> And the more junior the the principal at that big fund moves on.

22:43 They start their own fund. They move to another fund. Happens all the time. Right. So the person who invested doesn't have mandate. They can't sit around with the partnership and say look let's just put another five to 10 like let's turn over another card because your champion's gone. By the way I'm being contrarian here. This does not always happen this way.

23:01 I'm just giving you the other side to this. And then you haven't made the kind of 1, five, 10, 15 a r, whatever you want to call it. You just haven't made that. So it's like you're overlooked because it's like let's focus on our real winners and that thing's worth2 or 3 billion. So 95% is mandate for further funding is dead is gone. Now this is the beautiful thing about most entrepreneurs is they just don't think about themselves in that category.

23:28 I'm the 5%, I'm the 2%, right? And that's why we love entrepreneurs, >> but the stats are so far against you. It goes back to >> I hate to think of ourselves as like their insurance policy. >> But I think a few entrepreneurs have thought about that. And I think there's a little bit out in the zeitgeist going FC is a great insurance policy. You want them in the round and that it costs very little to have, you know, Harry or David in like for 500k or a million.

23:53 Are you really not tempted to raise more? Like every single constrained fund including benchmark historically the uh central figure in discipline in venture has raised a what a billion dollar a billion and a half growth fund. I was with another great growth fund that is very disciplined as well but we're raising billions too. Everyone who was is like no we realize the game on the field is you need money.

24:19 Are you really not raising more? It would be disingenuous to say to you that we don't have the discussion, that it isn't attention, that we we go back to it. It's hard to be contrarian when there's so much money going around. It's hard to say no. >> Yeah. >> And then here's how we come out is the GP has been the biggest LP and we're greedy for returns, not management fees.

24:48 >> What percent of the fund are you now? >> We're certainly in the last few funds the largest LP. >> Wow. So, you know, no, there's no LP that is bigger than the GP. We're seriously aligned with our LPs, but what are we seeking? And this is the answer to your question. It may be wrong, right? Literally, if you do the analysis, you may go like that was crazy.

25:09 You left so much on the table. We've been very disciplined about strategy and very disciplined about DPI. So, but if I just look at you, I'm sorry. I'm playing devil's advocate again. I'm just like, dude, like, you know, you had Coupang, you had Uber, you had Trade Desk, you've got Shield, you've got Suno. I mean, just tack on another $3 to $500 million vehicle and keep going.

25:33 I'm sure you knew Mikey was amazing. I'm sure you knew TJ was great. I'm sure you knew that these were great on Surely that is a conversation that has rationality >> because it's a rational conversation. It comes up. >> Yeah. And then you come back to saying, "Okay, who wants to do this?" You round the you're at an offsite with the partnership and says, "Who wants to do this?"

25:54 And I go, "Oh my, like I love the early stage, right?" Like I kind of may do it, right? And and by the way, I am an opportunist as well. I think of myself as some kind of value investor. So the interesting times for that for me have been like when nobody's funding. Why? And I think that person's great or it's a consumer play. So, and I know consumer multiples are lower, but this is a internet acquisition device and these founders are better at acquisition and the m that's where I sometimes go.

26:34 So, it's not in the hype hype hype go. Like, I'm kind of immune to that. I'm in pain. I mean, I I love you so much cuz you're so much smarter than me, but I'm just like the market can stay irrational longer than you can stay solvent. And when I look at like a Wix today trading at 2.1 billion on 2.1 billion of revenue, it's a great example where like there's obvious irrationality at play, but it doesn't matter.

27:00 The market's the market. And if consumer say is getting the pricing that it's getting, I can't change that no matter how good the acquisition machine is. And so like don't fight the tide that's against you is my thesis or ethos. [ __ ] swim in the swim lane that's swimming in your favor. Am I wrong and I'm just missing a contrarian beat? No, there's so many ways to do this.

27:26 Uh and and people have done so well. Uh you know there there are big funds, right, that have returned very well, right? You've got to be in the right vintage. But if you look at like Thrive or A16Z, they've had some big funds that have returned very very well. >> Yeah. >> A little less since 2020. Like if you look at the DPI analysis, like the jury's out from 2020 onwards.

27:50 Now, of course, if you were in like, you know, if you're like Josh and you're in SpaceX and Open AI, that's going to be like the most ridiculous fund, but wow, you are in the most rare air. And then there's just something that's competitive and unique and and it is economically irrational potentially but is I was in that company. I was first. I wrote the biggest check somehow for me being competitive with me.

28:24 Like that is the biggest thrill. I was with that founder from the beginning and we literally re reversed the truck and gave them everything they wanted. And by the way, does that mean that we're not writing3 $4 million checks now? We are, right? Because if you want to get a percentage ownership in something that you think is extraordinary, you're writing much bigger checks than we wrote before.

28:46 So the so the the fund is going faster than it used to. What is your average ownership now? And has it gone down over time? I look at ours and our biggest mistake and I can look at deal 11 Labs. I can look at Granola. And StarCloud, Fractile could have done them all, but would have had 1 to 2%. And all of them we turned down purely for ownership. And that is hundreds and hundreds of millions of lost returns for ownership.

29:18 I've never thought about that. >> I I I mean, all things being equal, right, like um I'm not a I'm a capitalist, right? So, all things being equal, like I'd love to own more upfront than less, >> but it wouldn't be the reason you turned it down. >> I've never I've never turned it down. Never. And you know, Mikey, I wanted to give him every last scent, right?

29:44 And you reached a point where he said, "Look, that is the dilution I'm willing to take. I'm not willing to take another iota of dilution." And we gave him what we gave him, which was literally every single scent in his first round. We showed it to other people, by the way. I mean, I showed it to you. >> Thanks, David. We weren't going to bring it home.

30:06 >> Um, and then when Matrix led, uh, which was not, it wasn't a popular round. Lots of people said no in that round. We asked every last scent. But would I have said no to Mikey because of percentage ownership? Like when you meet the right people and you're all in, it's like you get what you get. >> And so you will do the one to 2%. And you'll take it even though you can't size up in next rounds.

30:34 >> Well, you know, again, I think pro rata is almost like the original sin, but if others have it, like I I don't think that we should be excluded if others have that prata. We're seeing rounds now where there isn't prootera for anyone but the lead but the most major share. So it's not a pro rata for all major shareholders. It's for the lead shareholder.

30:56 I'm not sure I agree with that either in this environment. I kind of think that there should be a universal approach to treat your investors equally but but I think proo is generally not great for entrepreneurs. It's a call option against you. So we feel like we've had to work every time to put in a bit more money. We've never ever led another round.

31:18 So we have this view of like it would be negative correlation bias. It would be unfair to everybody if we didn't be somewhat kind of uniform. Do you think it's harder than ever to accurately concentrate dollars effectively given the rise of such preemptive rounds? We've had them where we haven't even wired the money and there's a new term sheet >> at different valuations.

31:42 >> Yeah. >> And that happens quite often now. >> Is it harder than ever to concentrate effectively when it's just so fast? some kind of framework is really really necessary and I credit my partners over the years with that of saying we may be writing bigger checks but above that post money valuation it's really not our opportunity anymore and you can look in the rearview mirror and say man I should have done Uber I should have done shield I should have and like huge kudos and power to the people who did but a framework

32:21 lets to act very quickly and I would say credit to Eric Paley in this case is he always created some kind of discipline. So the post money went up and up and up as rounds and the the momentum and the size of money and the environment changed. It didn't we we would do but we would never lead another round. We've never done that in our entire history.

32:44 So we haven't been preemptive and we haven't been like we'll lead your series A and we we like you more than others. But our ability to participate has always been there. Totally get that. Can I ask you? Peter Teal said before that like if he had just done every round that anyone else had done at an up round and it was a good brand, he would have done much better was kind of the ethos.

33:07 Have you found that to be true given the era? Like this has been the golden golden era. It's probably from a datadriven approach. It's probably true. Like if we'd followed on in Uber, Kong, Shield, you name it. If we just followed on, >> probably the data would show that we've done pretty well, right? If we follow, our view would be we'd had we we would have had to have followed on in everything and I think that the absolute return would be better.

33:39 I don't think that the multiple would necessarily be better on the fund. I'm not being rude. A framework is not the enemy of this venture cycle. Like I think it's so easy to be rigid in your mentality around, oh, we won't do anything over a billion. I I get you, but you're going to absolutely wse at me here. So, are you ready for a real I think a billion dollar valuation is the new series.

33:59 A >> and you're like, "Wo, Harry. Whoa, whoa, kiddo. Calm down. Listen to the facts. We used to do a 50 million post and hope it would become a billion 20x without dilution, like blunt." Uh, now you enter at a billion and you hope it becomes 20. You know, we have Mccor at 20, we have Cognition at 26, Cursor gets sold for 60 sold. This is liquid. Well, maybe a billion is the new series A.

34:24 No. I think you may be looking at the top two or 300 companies. Is that not our business? >> Um, I don't think so. >> Huh. >> I think that you I think that that's the momentum business. And I think knowing how and when to get out quickly with some of those really really matters. And that's not really my business. So my business is value is getting involved early and trying to find value opportunities.

34:54 And there are times again where it's an intoxicating founder and being on that journey together. But I'm not sure that those are your fund returners. The difficulty with some of those momentum assets is like it was what we were talking about earlier is you've got to be able to like run for the exits when you can on you know it's exactly what you were saying is >> you didn't think that founder was all that great right so when you had the or or you thought that the like the valuation was so far ahead of the reality of

35:24 the business but you're asking a question you're asking a a momentum question. >> Yeah. >> Right. And is it all momentum? I've got to be careful not to be too anacronistic in this because we have invested in momentum. There's just no it would be so disingenuous for me to say that we haven't like >> when you say that like what do you mean we have invested in momentum?

35:49 >> Our knee joke tends to be when this has gotten across a certain point like we're out of here and credit to Eric at a point for going like we've captured 80% of the value. we could capture another 20% if we did Uber at series A or if we did Sununo at series A. And by the way, it's not just on paper. I think there would be buyers for that position.

36:08 In hindsight, I look at that and I go like, were you anacronistic? By the way, we didn't we didn't even seek to participate in that round. We kind of go we built our ownership position and we're done. Like this is not the kind of investors we are. We're looking for the next seed stage round. And I think Harry, what we've done is we've drunk the Kool-Aid to such a large extent now.

36:31 You and I are so different that you're going, "This is hot. Let me go go." I'm going, "I've got a smaller fund. Where else can I really X my ownership versus, you know, getting a I know 5x or 10x." But of course, the environment makes you look quite silly in retrospect. The question is how long does this environment go on for? And it's also about like how and this is the you you have unbelievable returns and you've made a phenomenal amount of money for your investors but the quantum of cash that you move matters and

37:01 Josh and Elad and the multi-stage funds moving hundreds of millions and billions. You you make a larger quantum of cash and so I get you with the in terms of your your multiple goes down when you lead the series A. Look, there's there's so many different ways to play this. And I think when you talk about Josh and you know, a handful, they've killed it.

37:27 They've absolutely killed it. A lot of LPs very wrongly I think don't like the large platforms and always just come back to this very kind of I think basic rudimentary thought that as you scale fund size, returns always get worse. Always. You whenever someone says always be careful. Um but I think with the outcome expansion that we've seen cursor at 60 billion trillion dollar companies in a matter of years with open open air anthropic you will see venture returns with mega platform sizes.

37:57 Do you agree? >> Largely no. So largely I would say who are their LPs? Who are they working for? And in some of these cases, it's not even endowments anymore, >> right? Sovereign wealth fund. >> No, no, it's definitely not >> and if you and and sovereign wealth funds and public investment corporations are looking for IRR, >> they're not measuring this in how many times do you X the fund.

38:20 Doesn't mean that A6Z and Thrive haven't xed a few of their funds really, really nicely. Again, subsequent to 2020, like the TVPI is there and some in some cases they're on steroids. The DPI is less there. if you look at the actual stats, but they're working for these sovereign wealth funds and they're giving great IRRa and some of the endowments, some of the biggest endowments are like rounding errors now.

38:46 >> Yeah. >> The the question is who you working for, right? And like I again obsess with this alignment with the entrepreneur and like we're working for ourselves as well, right? And we're working for DPI and the bigger we make the fund, the tougher it is on the DPI. Like what am I doing this for? fund after fund after fund and you know I I can't give you the numbers but fund one fund two by the way there's this wave AI theme you know if we look back on fund two it's all about applied AI I mean that's really what the

39:19 fund if you look at the winners in fund two it's shield AI which by the way in 2016 was called shield AI it's vicarda right it's whoop now all of these things are commoditized all of the hardware is commoditized. Video cameras are commoditized. Drones, I mean, you can buy a drone for, you know, forget DJI, you can buy a drone for $20 now, like $50. It's about putting AI around these completely commoditized platforms.

39:48 It was 10 years ago, but it wasn't the theme. So, the one thing that you're talking about is momentum around a theme. And I'm going in 10 years time or in 5 years time there will be a new theme. The job will have been to get into that theme ahead. I don't even know what it is. I hope I've got some on goal. And those weren't the expensive ones though.

40:12 Those were not they never are. So using AI is really important. I guarantee you all of these things are called applied AI businesses today or physical AI. physical AI is all the job is to be in there 5 years or 10 years ahead and it's not where the momentum is. It never is. When you look at you said that kind of fun too and you said a couple of names there with Vicardas and your Whoops and your shields.

40:35 Um how concentrated are the returns in your funds? I spent time with Honam from Altos and he's spoken about return concentration with Roblox and it was mindblowing to me. How concentrated are yours and what lessons do you have from that? The amazing thing is they've been way less concentrated than you would expect. >> So look at fund two, forget fund one now.

41:01 Fund two, Vicarda, Shield, Whoop, Pillpack in and for the most part one of or the single largest investor in the first institutional round. It's not concentrated. If you look at fund one, we always talk about the, you know, the the trade desk and the Ubers and the Kongs. Fund one still has Air Table like in at the very beginning challenges in the SAS environment, but Simply Simply is the biggest piano teaching and and music instrument teaching company in the world.

41:37 SeatGeek haven't sold a single share in SeatGeek. That's still in fund one. Why haven't you sold a share in SeatGeek? I think it's spiritual at this point. >> It's a religion. I'm wearing Jack's t-shirt beneath this. Beneath the shirt, you've got Jack's face, right? >> That would be an epic. >> I did that. I did that at my LP meeting. >> That would be very funny.

42:00 >> Before Jack uh Jack and Mikey both presented and I literally said to them, "Get me t-shirts." Right. And I ripped open my shirt. >> But I I'm actually worried about this, which is, you know, and I'm not positioning this at our table at all. I think how he's wonderful and brilliant and a brilliant product team, but like you're seeing the cannibalization of leaders in a space like Air Table respectfully and like Sneak the cyber security company which in a similar vein is going through challenging times too in terms of

42:29 growth rates and everything involved. Well, there hasn't been a liquidity event, but the cannibalization has already started. It's like the innovation cycle's taken steroids and gone too quickly to allow liquidity events to even happen. Does that worry you too? >> Look, I mean, by now, Harry, it's it's very hard to play around with Claude or something like it and not have the revelation that we've all had.

42:56 But then you look at some of these SAS companies and you look at the SAS apocalypse. When we were when we were on the OLO board, when it was listed, we'd look at companies like Viva, right, which is I think at a $30 billion market cap now. It's come down, I don't know how, at least 50% or more. And we'd go, this is the most perfect, like we want to be this company.

43:17 It's hard not to look at some of that market cap erosion and go, is the baby being thrown out with the bath water? And it's about the last 5%. I think it's about the lost and and I would say if your air table and viva or olo look very different the more embedded you are like the more difficult you are to dispense because real time thousands billions of orders are being run in your system or like missionritical biotech research is being run in your system the more embedded you are I think the more overdone that SAS

43:52 apocalypse may be the less embedded clearly right the easier you are to kind of turf out and play around with Claude, you name it. But I think we're underestimating that last 5%. And the contrarian in me, this is not what what I do, would say, buy a basket of like the top SAS stocks that have all lost huge market cap. You're going to do okay. You you are.

44:13 And Roy Driscoll, who we do the show with every week, has done that. And I put my money into Palunteer and said, "I'm a momentum surfer. I did better." >> And that's the hard point, which is the opportunity cost of cash is so real. Yeah, >> that you can be in one and try and be smart, but you're probably right longterm or you can just be momentum trader and you'll be right actually in the short term and if you can time it well, it makes a difference.

44:36 You said there about >> the difference between in a way between our styles is every single company I invest in and it comes back to concentration. Every company I invest in, I invest in with the hope, right, that it could be another Sunno or Uber. I literally do. I don't invest in companies and go, "Oh, I'm investing in you, Harry, because I think you can be a 10x outcome."

44:58 I don't I don't do that. >> You don't? >> No. >> Wow. >> Yes. >> Every company we're investing and we think, "Wow, this could be ginormous. This could be gin." >> I'll give you Jason Lin. Sorry. And then do you want He just taught me a very simple one. He's like, "I'm not smart enough to predict the future. What I look for is can I get a 3x on my next funding round?

45:17 And if I can get a 3x on my next funding round and I really believe in a great entrepreneur, CEO and a great CTO, I'm in. >> So, so we we use the same logic, but it's always been 10x. >> I will not invest in this if I don't think if I'm not sure that there's a 10x. We have at our team meeting, I love it because dot dot dot. If you can't complete that sentence, you can't invest.

45:41 That's how we start the team meeting. That's how we start talking about a portfolio company. What's your greatest lad? >> Like when you look back on that, what's your >> So, so in more recent times, I've gone I love it because I'm obsessed with Harry, right? Like I just think that every question I ask, I get a better answer than I expected. Every time I press, there's no there's no evasion of the facts.

46:08 He never says to me, "Oh, we're the only one in this business." He always says, "It's so much harder than you think it's going to be. get so much tougher and like this person's leaving me and I love it because they're obsessive. They're all over it. They're, you know, they're so deep in this and I just can't get this out of my I I will not say I love it because of valuation by the we've we've always come to valuation lost.

46:32 We've always gone opportunity market founders founders first and foremost. It's in our it's in our name and we come to valuation lost and I cannot say that every single time we've invested we've gone this is a perfect valuation. In fact >> rarely is. >> No it rarely is a little bit uncomfortable I find. >> Of course. Of course. Exactly right. By the way you can go I love it because of insight into the vertical.

46:58 I love it because of an edge that nobody else can match in a commoditized business. I love it because, you know, it's a I'm writing this piece on Nepo babies and I'm going I love to fund Nepo babies. So >> what >> I'm writing this piece right now. >> Why do you love to nepo babies? >> So So I go TJ Parker, right? Working in his dad's pharmacy when he was 15, 14, 16.

47:28 like he has got more edge in that vertical than he knows. Uh Mikey comes to to AI to voice AI to music to audio, right? They've come out of Kensho. That's all they did at Kensho. So you take Mikey and Georg and um Martin Kamacho, that's all they did. Martin was the CTO of Kensho. They're not the Nepo baby, but Evan at Rebar. So Evan at Rebar is HVAC preparation and HVAC quoting.

48:03 There are over 100,000 mechanical engineers in the US that are making 100K each at least when they graduate. And all they're doing is sitting with this blueprint process so that they can quote on new commercial and and Evan's sitting there and by the way he did work for his uncle's company that was rolled up in a PE 10 10 of these things and they said go out and find the AI for this and Evan goes out and goes there's no AI for this and he goes I'm starting rebar and I go there folks who have been in these verticals

48:37 since they were kids. He watched his uncle in this vertical was like there's nothing else he was going to do and I go like they have more edge than they know what to do with. I get you sorry just to be clear for you. Neo baby where I'm from is trust fund baby who has billions of dollars. I was like dude I do not want to be funding the kid who's at Scorpios in Mkos spraying dad's money.

49:01 >> I I I I we're we're using Nepo babies with different definitions. >> Very different definition. I'm talking about folks who've been in a vertical. >> Yeah, I that I >> have lots of edge in that vertical >> that I totally get. You said you haven't sold a share of SeatGeek. The timing of when you get out matters a lot. Do you have any lessons on when to get out given I think this generation of seed managers will be defined by their ability to access and navigate secondary markets effectively.

49:31 >> So, it's interesting. You're asking this at a time where I have never seen secondary markets as liquid. It's probably not that surprising given fewer IPOs, fewer M&A up till the moment here, an IPO market that will probably be open for the remainder of this year and then these IPO markets always close. So in the top 100 names, wow, the secondary liquidity is incredible.

49:58 And you can price your position, I would say, reasonably efficiently. You can look at around and go, okay, the secondary markets in offering me a 25% discount. It's probably worth, you know, 7 and a half, not 10. And then you can look at a number in the top 50 at least where you're being offered at least the price per share of the last round because loads of folks loads of big folks Blackstone didn't get their prata and then they're sucking it up.

50:29 >> Mo most I'm seeing do not have a discount for sure. >> Yeah. Uh we we we've seen a premium right where insiders know there's another round. Talking to your point about momentum, right? You were talking about momentum in the early stage. We've seen situations in our multi-billion dollar names where the round goes down in December and the boards already talking about the March round.

50:52 And we kind of see it sometimes when when we're not on the board, but we just see it in the momentum in the secondary market. Now, Harry, you're in very rare air there. And let me just say, I I don't want to um in any way make it sound like we're in that with all of our companies. We're in that with at any one point a handful of companies. But in those situations, I think the difference in fund management is when you take secondary and the ability to give DPI even in your top names sometimes taking 20% off the table if

51:25 you can return 25% of the fund particularly if it's a newish fund. So if it's a you know if it's 2024 fund and you can give back 25%. Like why wouldn't you do that? and you're still long. You still own 80% of that company. >> I just think we don't think about the velocity of cash enough. And what I mean by that is like, you know, yes, there might be another double, but if I have to wait 5 years and then the IPO and then an 18month lockup, Jesus, give me 50% of that now and I'll way rather have the certainty and the DPI

51:59 now than the maybe a double from here with 6 and 1/2 years. >> Yeah. Do you >> This is not a precise science. >> It's not. >> I've looked back in every direction and we've gone. By the way, the best is you sell 20% and you were wrong. Awesome. Did you do a good job of sellown on Uber? >> You know, in retrospect, we probably sold a little too early. So, this was early on.

52:27 You know, this is a business that's getting close to$10 billion in valuation, and there's an opportunity to take some off the table. And you're very new >> also at the time that I'm so sorry this sounds awful and again chastise me 10 billion at that time was so much more than it is today. >> Yeah. Yeah. >> Yeah. Yeah. >> Did you sell all at 10 billion?

52:48 >> No. Definitely not. >> No. No. Uh no. We were we were net long at the IPO. One thing that's very sad or challenging is when when an exit event happens and then you look at kind of the number that comes back to you and you're like, "What? Where did it where did it go?" And and I think you're having this normalization of incredible levels of dilution today more than ever before.

53:18 >> Wow. >> Do you see that and worry about that? >> Yeah. Look, dilution. It's interesting. Like I look at uh Whoop versus Sunno like we're so proud to be in both but Sunno you know Sununo has been a very quick journey. So if you look at like how lower how much lower the dilution is part of it is just how quick the momentum of that has been versus a Whoop which is hardware took a long time like raised a lot of money along the way like unbelievably proud of the of this company.

53:47 some of these companies. It's incredible how little dilution there is because the pre just goes through the roof. We're seeing also a lot of very low dilution but large rounds. You're like ramp raising your like 500 million at a 40 billion price and actually kind of seemingly no kind of 50 million rounds at a billion dollar price. How do you think about and reflect on those?

54:14 Just a brilliant product for founders that they should absolutely take advantage of a normalization of continuous funding because they do more more frequently. How do you think about those? >> And this goes in every single direction like you've got to be producing and you've got to get into the rarest of air there and probably there's a secondary opportunity in that kind of situation for us.

54:39 So we look at that and again we're in so early that at those kind of numbers that kind of momentum like we're trying to sell a little bit of our position. Do you find LPs have changed? And what I mean by that is like I speak to a lot of LPs now. Do you know what honestly we can say what we want. They've gone back to wanting t TVPI. They've gone back to wanting big numbers and yes they want DPI.

55:05 Of course they always want DPI but they are still very impressed by TVPI and they're very impressed by oh wow you're in this glossy name lovable lorum mccor there still that do you find they've changed or are they still the same animal there's lots of change because of who was doing this 15 years ago and who's doing it now you have to have some allocation and the big funds provide these containers for the large endowments and the large, you know, public uh investment corporations, the if I think of the same LPs that

55:40 have been with us for a long time, uh a lot of them like have minimumsiz checks now. So, we're too small for quite a few of them. It's like if I can't put $50 million to and I think there's it just reflects the inflation of the entire environment. And there are a bunch that really do need the TVBI, particularly the fund of funds, because of who they're selling to.

56:05 By the way, we've seen fund of funds do secondaries of their entire fund. So, we go, "Oh my god, you're in fund two or you're in fund four. Like, you should never sell, right? Like, this is what's" And it's like, "It's not about you, right? Like, you're a rounding error in this fund and it's got three or four good names." And I think what they're trying to do is give liquidity to their LPS for the next fund.

56:28 So we've seen when I talk to you about secondaries, it's in a particular name. We've seen an entire fund, you know, billion dollar fund easily just sell the sell the whole fund or sell a vertical slice of the fund. What's going on here is the finance around VC has become so much more sophisticated. I don't know if this is good for the entrepreneurs.

56:51 It could be because it just means there's way more liquidity in every direction. And I think there if you're a winner, it's it's great because you can manage the secondary to some degree. And if you're not on the winning side in terms of the entire ecosystem, it can be very tricky. By the way, Harry, I talked to you about this on this podcast. we spend other than thinking about some secondary in our very mature portfolio.

57:18 I spend very little time on this. The beauty of this is I am not a financial animal, right? Ultimately like I'm much more of a entrepreneurial curious animal, right? Like I'm looking again for these these wizards, right? Like these I don't know these like you know wayfinders. I'm looking again and this is the problem for me in a way is I'm or the blessing is I'm looking to repeat a success.

57:44 I'm looking for the next high. I'm looking for a Noah gloss. I'm looking for someone who is that focused on and has a vision and will not take no for an answer. That's how I'm spending 90% of my time. I'm not spending much time even on LP management. >> Do you think we have less loyalty than ever? You said focus there on the founder side. You see founders have angel investment portfolios that are as big as our fund portfolios.

58:13 You have them doing side funds. You have them doing two companies at once. You have them leaving very quickly often in 6 12 18 months. Is there less focus loyalty than ever? >> Uh we've definitely seen evidence of that. We've also seen people who stick it out way beyond what is rational just because they're obsessed. So I think on the margin you see some of these actors you see and we've seen founders so-called founders and they were like kind of the founder but they got a CEO involved and then they became exec

58:56 chairman and they used their brand power and I think like shame on us for and we did get involved in some of these situations where we were dazzled and it was like you know second time around. Is that person going to stick around? And some of it is just didn't get big enough fast enough. >> So, there's some abandonment. I still see that the vast minority of the time.

59:22 >> Like, I think it's easy to extrapolate and go that's a trend. And I could be very polyianish about this, but for the most part, like I see founders wanting to make it work. second time founders is a little bit embedded in that question and the question is if you've done really well what does it take to move the needle and I think overall we've done a little better on second time founders who didn't do that great up front they didn't they did okay right it's life-changing like the first million dollars is so

59:56 life-changing but they're really hungry they've learned some lessons they've got one or two people that will join them on on the next journey. They've learned some lessons and they are hungry. They're in a they're in a hurry as well. We've done better there than generally with folks who had great outcomes and kind of said let's go again because those are the folks who got bored and went like m not big enough, not fast enough.

01:00:21 What What does no one know? You've been very successful. What does no one know about making money that you wish you had been told earlier? So, like one weird one for me is like far more successful than me, but like I'm much less patient now than I was. I got used to a higher standard of service, food, quality of everything. When something's bad now, it frustrates me a lot more than it did when I didn't get used to it.

01:00:53 I don't like that in myself, actually. I'm less patient. I I I patience is probably my biggest vice. lack of patience. If you asked people about me, I'd say they they generally say he's great, he's kind, and he's he lacks patience. I'd say my kids say that of me. I think it's the ying and the yang. I think it comes with entrepreneurship to some degree when you're that immersed in this environment.

01:01:18 I think you kind of can get fed up quite quickly. the the more virtuous answer to you, which I prefer, is you kind of start to go, the stuff that really matters is kindness and how we interact with each other and how I left you, how you made me feel, and all the rest is fluff. At some level or another, we're like our phones have become these remote controls for our lives.

01:01:48 actually the entry price to like get what you want when you want. If you want a vehicle there, if you want your food there, if you want to book a flight or a train ride. Earlier last week, uh the plane is delayed literally on the Amtrak app. 2 seconds later, ask the Uber to go to Amtrak, go to Penn Station instead. Like the degree to which we can get what we want when we want at any level.

01:02:16 you don't have to be that wealthy to get it is insane. Right? So, what's happened is our level of expectations have just gone up through the roof. I don't think that's just about you and me. I think that that's the perennial equation of like satisfaction equals perception minus expectation. So, it's just much easier to not be satisfied anymore because our expectations are so high.

01:02:42 So our perception, you know, it's one thing when you go into a fivestar hotel, you have this huge expectation. You walk into a three-star hotel, you have a much lower expectation. Well, extrapolate that equation for life now. So it's easy to get pissed off. And the antidote to that is stopping for a second and saying, "How will Harry feel when I left him today?"

01:03:07 like did he feel like I gave him a real hug and I was kind? And I think that's going on in my 50s now is how do I leave people? How do I leave the world? How do I leave the entrepreneur? Was it like we squabbled over the last, you know, percentage point or it's like just this journey's been awesome? I always think there's energy drains and energy gains and how you leave someone is how you're remembered.

01:03:32 Um going just going back before we do a quick fight I do have to ask how does this landscape change with open AI and anthropic they are so seismic in terms of just sheer size both will be trillion dollar plus potentially close to two trillion how does that change the landscape do you think for the better I remember the Microsoft Google case going on forever and Gates going you know we are disruptible and at the time going like who could disrupt Microsoft and turns out you know Google was Google and then you go who can

01:04:04 possibly disrupt Google and then you look at OpenAI and Anthropic and you go wow like if if nothing else and there's so much else like if you look at the top of the funnel in terms of where you start your search when did you last start a search on Google right like it's just mind-blowing that displacement and the good news in this environment and this ecosystem is that they will too be displaced and so the platform has changed tremendously.

01:04:32 Are they going to be disrupted? >> No, I don't. I think Google's a net winner. I think uh I actually think Google's done. So I think Microsoft have done a crappy job of um AI generally like I think Google's Google is actually if anything in pole position because they come from that environment and the ability to search with context the apply with context >> is just like incredible but they're having to fight like crazy for it.

01:05:05 Microsoft, it's not clear to me that they can get back because their AI feels second rate compared to the top three or four. But I think so there's a platform change. There's always been a platform. You could argue that radio, television, internet was a platform. Can you do well in that platform? Oh, hell yes. Do you think they will lead to a ton more venture money coming in with a huge amount of money going back to LPS from the returns that are generated?

01:05:33 They'll plow those back into venture. So, the returns at the top are going to be incredible. They have to be now. And I think that that capital is going to spill over into venture and all sorts of investing. You alluded to it earlier, Angel. I think luxury, right? Like I think if you own a luxury property, uh I think >> San Francisco property prices, >> oh my god, like San Francisco's Rome.

01:05:55 I was there like 6 weeks ago like San Francisco and the Bay Area is like and it's more San Francisco than the Bay Area is back on steroids, right? It's like going to Rome, right? You know, when people write off the United States, which is to me still the greatest country in the world for venture capital, I go like, "When were you last in San Francisco or the Bay Area?"

01:06:19 because it is insane at the moment. What's going to happen is there's always boom and bust. So, you know, a lot's going to come out of the system at some point. Are we headed for another dot crash? Definitely. If like is not a question when, nobody knows, right? But is there a lot of capital, a lot of gain coming out of the system and that will be in reinvested in venture and it may not be in classic kind of structural venture.

01:06:47 It may just be in like angels putting money all over the place and some of those angels are going to know people that worked with them or for them and they're going to, you know, I think you can bypass traditional venture to a great extent and that's the challenge for us. That's the challenge of how do you stay relevant in this environment when there are so many alternatives.

01:07:08 >> I completely agree with you. Final one before we do a quick fire. Do you buy the commonly stated concern about smaller teams, job displacement, and a concerning future for human participation in labor forces? Underpins to endeavor are getting better and better and better. Like I remember, you know, when we went from servers to cloud and that was like, wow, like I get all of this for free, right?

01:07:34 Like I don't have to do any of that, right? Like security and servers and like forget that I just do cloud, right? If you look at like where AI and where this foundational platform layer kicks you off, it is incredible what you can do with very few people. And we are looking at certainly sub 10 people. Companies achieve a lot. Do I think that we're going to have mass unemployment because of AI?

01:08:00 And you're seeing a lot of leadership now agree with the viewers. No. I think we're going to see tremendous productivity gains. I think like every wave there the halves and the have nots and if you're not training and playing it's a little bit why youth has an advantage because out of college and that if you're tinkering and playing right like you are familiar with the tools you can use the tools and it used to be the halves and the have nots were like have data I talked about this with Noah Glass and Olo all day long

01:08:29 going like the value of having data and using that data and by the way it's yours to lose if you don't enrich that data. Now, the value of having these tools, it's becoming more and more binary, but I do believe you'll see swaths of people retrained on this. And I I think you're seeing it globally. I think you're seeing this as a opportunity in lowcost environments in places that are not Europe, not the US, not the north where you can skill people up and you can provide these skills to the rest of the world at

01:09:05 tremendous cost advantage. My worry is it's much easier to train than it is retrain. And actually the 22-year-olds coming out of university who are tinkering in dorm rooms with Claude and kind of they're not super AI pill, but that they're mentally plastic to it and they they're going to be pretty good versus Simon or CLA who are 45. They've always done their job in accounting and they just are not so mentally plastic.

01:09:28 >> So the only advantage that Simon and Cla have is they are very vertically knowledgeable and relevant. So sometimes in terms of sales, like if you're selling to yourself, there'll actually be very good salespeople. This is a theme that I'm kind of interested in services business where you won't buy that from you. You you you want to see your auditor at some point.

01:09:50 You're prepared to say I know AI will do an amazing job, but at some point you want me to come see you and just kind of like go, you know, I I haven't like left this whole thing to AI, right? Like I actually know what I'm doing. So I think there will be people who are vertically relevant who be able to sell and there are many industries where the relationship still matters.

01:10:09 At a certain point if you've got litigation and $100 million you can get AI to write that little contract for you where it's $1,000 on the line but you've got a $100 million litigation you want to look at me and say like Dave your 10 years of experience I need it right now. So I think there are times where knowing a vertical being relevant in that place and in the service industries I think it's good for the UK by the way.

01:10:32 I think there'll be a ton of people who are still needed for the human interface that's not going away. I think that a lot of the work that was grunt work and human work behind it going away. On the services side, I think it's just a TAM expansion play, which is like so much of the things that you couldn't afford a lawyer for, you'll use and you'll get great benefits from.

01:10:52 And that is just a TAM expansion play. I think insurance, lots of admin, like lots of like life insurance. I want to there's been a lot of direct life insurance sales anyway. Like I But but I think that in bigger ticket items, having a human who gets it as the interface, there's still place for that. Totally agree with that. Um there was something interesting.

01:11:15 I had this incredible founder June who's the founder of a company called Similey which does simulation markets and he was like we will have companies spend 100 to 200 million on one uh model kind of result because that model result is so important like the output of one query and I was like wow that's a really interesting world where you will spend 100 million on anthropic telling you the answer to one question.

01:11:42 Nuts. What's the size of that organization that would spend that kind of money? >> Oh, PNG, uh, Coca-Cola, Nvidia, uh, Visa, you name it. >> You know, is it worth us sponsoring the World Cup for a 10-year exclusivity period? Visa, >> right? >> I think that, uh, governments and defense organizations, some kind of speculation with data of the future. I think that's a very interesting play.

01:12:10 Do you worry that Trump's been good for business but bad for everything else? Is that a hard balance to hold in your head? I ask an outsider. Genuinely curious. I think you have to hold many truths at one point in time and there's the the question is did Trump create this environment or is he presiding over this environment and getting credit for it.

01:12:36 I think with all presidents they arrive and they get credit for the environment as it is and yet it was created many years ago. Uh and letting AI thrive in the US has generally been a good thing for the tech industry in the US. The level or lack of safeguards on that could well be problematic. But net net like if it's good for business, it's good for the US.

01:13:07 I think Rusefeld said that. I think that's what these administrations have said. And by the way, I think that a lot of the tech backlash around Biden was for this reason. Whether it was true or not, a lot of insiders say to me it was BS, right? That like for the most part Biden was super pro business. And if you look at the subsidies for energy, if you look at a Tesla today, this is the thing that kind of I don't really get about Elon is is the num the the the non-dilutive government funding that Musk got for Tesla

01:13:48 from the Biden administration was huge. So without being political, I think that net net like government in the US has been pro business for a long time and I think that the country is really reaping the rewards of that. There are two AI superpowers in the world. By the way, what's so fascinating is in the 1820s, China was the economic superpower of the world.

01:14:12 I don't know if you knew that. >> No, I didn't. >> Yeah. So Great Britain displaced China. And a lot of it was industrial revolution and then the US displaced Great Britain. There was in the economist there was a chart on this but in the 1820s 25% of the world's global output economic output was from China. It was the biggest economic machine in the world.

01:14:34 And really what you're seeing is two superpowers emerge for sure. And I think a lot of this is going to be about AI. AI flows into not just industry, but in terms of what's going on in defense, having been very very early the first check in shield AI and watching how that's played out. The US needs it. Like our our enemies have access to all of that on steroids.

01:15:01 I I'm terrified about China right now to be honest. when you look at the power and strength of their open models, but that goes back to thinking about Microsoft and Google being disrupted. What could possibly you know that anthropic and open AI are going to be disrupted? It's like unequivocal like our whole careers are about disruption. Those platforms never ever stay forever.

01:15:29 Where is it going to come from? Excellent chance it comes from China. It's coming >> 100%. God, we haven't have enough time to for them to establish their incumbency yet before they're already being taken down by Chinese open source models. It goes to the point on the speed of innovation cycles. >> Yeah. Yeah. By the way, we haven't even touched on underlying computing.

01:15:44 So, if you look at photonic computing, if you look at what's coming down the line now, so you looked at Intel at a point when like that that can never be disrupted and then Nvidia, it's just like mind-blowing. What's coming to get Nvidia? like the photonic computing plays right now where it's not electrical anymore, it's photons. So if you look at the data centers where everything that can be optic fiber now is so every single connectivity piece of hardware is fiber.

01:16:14 The only thing that has not been nailed is the chip, right? You're going to see optic chips with which are very very energy compliant. So when people talk about the data centers and the energy sucks that's going to change in my view if you say in 10 years time and I am not a thematic investor but I am such a deep believer in the status quo being changed always and not and like nothing stays the same.

01:16:41 I think photonic computing is coming down the line and I think that's going to be the Nvidia disruptor or Nvidia is going to buy those companies. >> Okay. And the capital intensity required to build a photon company I think or an energy company as we're in some is just dramatically more capital intense than prior technology. Again going back to my point you need more money.

01:17:02 This is where the US could be deficient. If you look at the amount of money that's being spent in China on energy efficiency and energy research now I don't think we're spending enough. And by the negative of the Trump administration is we need much more money being spent on R&D. And I think there was a view that the universities are squandering it to a large extent.

01:17:23 I agree with that. But I think that we tapped off a lot of DARPA R&D that goes in that finds its way into every nook and cranny of of um of the economy and we need more of that R&D. We see some of it. I live in Cambridge, Massachusetts. We we have some of the best R&D organizations on the planet. If you look at MIT, Harvard, Northeastern, BEu, BC, what's going on there?

01:17:48 And cutting that spend, which goes back into society, I think is problematic. >> Totally get that. Another one though that is more challenging, I think, to change is just policy and regulation. Like Chinese approach to policy and regulation is is almost none. >> It's none. >> And it means that you can bluntly build and deploy so much faster. >> And Europe's the worst.

01:18:09 US is >> tough, too. I'm not in biotech, but when I talk to friends who are in biotech venture investing, they're all flying to China all the time because they're going, "Look, in terms of R&D, in terms of licensing, in terms of anything goes, and in fairness, it's not a totally anything goes environment, but there's so much more grassroots activity and a lot of it has to do with regulatory environment."

01:18:33 >> Totally get that. What would cause you final one, what would cause you to increase fund size? >> Anything. Oh, I would say um so if you if if I am honest about what we did early on is as an angel I had said the risk premium for the seed stage was way overstated. So the premium for experience right like I couldn't get that. A lot of the folks that I got involved with very early were graduating.

01:19:10 There were Noah Glass, Jack, uh you name it, Eric and Micah. And the there was a dislocation between the perception of value later versus earlier and that has been largely narrowed and crowded out. So if there was some kind of Harry, we didn't come at this going I'm obsessed with economic arbitrage. We came at this going, I'm obsessed with great founders and I want to vicariously be on that journey.

01:19:39 But if you had to look at this retrospectively and say, what did we do in economic terms? There was an arbitrage. There was a real arbitrage because the risk premium at the seed stage was way overstated. That has changed completely. What would cause me to raise a bigger fund? If I looked at series A or series B or series C and went like there is such a value opportunity because everybody's abandoning this.

01:20:04 I don't think it's true at the moment. I think just capital and money finds its way to everything. But if you went so many series A companies are orphaned and there's amazing value. There hasn't been one to 10 to 20 an ARR increase in one year but wow they're on track and that looks like it smells like Olo. It looks like SeatGeek. I think that would cause me to say we should be investing $10 million at that stage.

01:20:28 So it's not momentum, it's a sense of wow like I can't believe that others and I have been very tempted there. I've been very tempted to say this company is doing incredibly well on the revenue side and it's being undervalued. Final final one on principle you say about Olan. I love I think Noah is one of the great awesome human dude. It's 17-ear journey to a 1.6 1.7 billion exit.

01:20:59 >> 2 billion exit. >> 2 billion exit. I love Noah. I love Ola. It's an amazing business. It's an amazing journey. But when you think about like utilization of cash most optimally, 17 or 18 years at $2 billion exit, the IRRa is not amazing. How do you reflect on that and and justify that versus maybe hotter rounds? Yeah, I mean the outcome was it's publicly known eventually Toma Bravo we took the company private for about a $2 billion valuation.

01:21:27 So not a not bad for a few years of work and if you take on an IR basis you're probably right. The journey and the fun of it was just enormous. So being involved with Noah where it was Noah, a few other founders and me from the beginning and being on the board until that sale was just the ride of a lifetime. So first I what have you changed your mind on in the last 12 months?

01:21:53 What's been surprising and what I've changed my mind on a little is is like where is where AI should have impacted like crazy and I've seen lesser impact so far with all the hype with all the momentum like AI changes so much in terms of software and enterprise and SMB other than the models themselves and some good stuff around human interface so a lot of stuff around the voice has gotten a lot better.

01:22:23 I don't know about you, but I would have expected much more around consumer AI. So, I've seen Sunno, I've seen but like in terms of changing how I do stuff, I I type much less, right? Like I speak much more in terms of communication. Like I would say there are so many kind of consumer areas that I feel are not yet played out at all. When you're doing Sunno at 5 billion, what are you underwriting it to?

01:22:50 I think that the folks investing at that level are going this is a Spotify disruptor that this is that Spotify and Apple Music. It's a big bet that >> you got to go from creation tool to consumption tool. >> Oh totally totally. Uh that's why Jack from Snap was brought in is interestingly I was at a conference with Martin and Martin was on a Martin Kamacho who's the CTO of Sunno and the panel he was asked a question if a large language model could do what you do better than you do it like would you slot that in and

01:23:28 you're talking to the CTO the guy who's built the the whole model the entire Puno model is from the ground up and without missing a beat Martin goes wouldn't think twice about it. It goes to your point of this is a consumer product. The experience, the interface, think Spotify, right? That's what we offer, right? How we get there is obfuscated from the user.

01:23:50 The user couldn't care less. Like whatever gets you there. Did you ever predict the speed of that? >> I mean, no. >> Yeah. >> No, definitely not. Because I do you remember the days when Slack 1 to 10 in 18 months was like the gold standard. I mean so you know multiple hundreds of million. I mean half a billion or whatever it is now. It's nuts. >> No.

01:24:13 No. Goes back to Uber. You know when Eric's asked how did you know? How did you know? And Eric goes I didn't. He said the company I saw before the company I said saw afterwards. Like we underwrote those in the exact same way. And I think when you go anyone in my seat who says I knew is just full of [ __ ] I I absolutely love that. What's been the most controversial deal that you've done internally?

01:24:42 >> What can become controversial is the what or the where. So certainly Kong was like got back I said to Eric Korea and he said you know do you even know if it's north or south? But the magic there is I am based in Harvard Square. So people go, how do you get to Korea, right? Like how do you get to all sorts of places? And the answer is Harvard Square.

01:25:03 So Bomb, you know, Bomb drops out of HBS after his first year and comes to see me. And another controversial company was probably Shield in terms of the what it does. So I would say the whole partnership didn't necessarily love, you know, defense drones. And early on it was like, is this only defense? So I love it because has certainly taken us to some very controversial geos and controversial watts.

01:25:36 >> Our prediction marketplace is just legitimized gambling. It has to be right like it it I mean if you look at like Kelsey and Poly market what's the difference there between DraftKings and Bway and they seem very similar to me. But by the way this will be controversial. TVPI verse DPI. The one looks like a prediction market, right? And the one's real.

01:25:58 Like I I could say the same, you know, TVPI looks like a prediction market, right? But I mean, candidly, when they're doing two billion in AR, who gives a [ __ ] >> The one thing that you worry about is a Trump change in administration and what that does to regulation around them. >> Yeah, >> that's a different game. >> What do you know now that you wish you'd known when you started Founder Collective?

01:26:19 >> So, for the most part, frameworks have saved us. It's also the place where if I look at some of the deals that we didn't do and we just went we used valuation as shorthand to say no terrible mistakes. So Clavio loved Andrew loved Ed came to me first came through Hugo Funfiran who also sent us and didn't do it because of the framework and the framework allowed me to easily say no.

01:26:47 So we'll miss a lot. We'll make plenty of mistakes. I think I've freed myself like you a little more in that area and just go they're extraordinary. But the frameworks have saved us as well. >> Penultimate one biggest advice on a happy marriage and relationship kindness and being present being present with each other. And I think like I think of this at dinner at dinner time no phones are allowed anywhere near the dining room table.

01:27:18 And I don't take my phone to my bedroom. Like my phone is never alongside my bed. Here's the rub. Doesn't I don't need my phone to be distracted. Like here distracts me perfectly. How to be present and involved and look you in the eye and kind of make you feel with my body language that I'm hearing you, that I'm invested in you. I think the same thing that we think of in founders like happy life your kids your wife your siblings your parents like how this is the lifelong goal like I don't I have not got this nailed but

01:27:57 how do you show them you're present you're there like they matter to you and that's that's the quest final one what are you most excited for in the next 10 years you know I I look at like me you know my mother and I walk marathons uh she's got our math Um, I think there'll be amazing discoveries for chronic conditions which we always just assumed would be forever and that could change millions of lives.

01:28:23 I think that's super exciting. What are you most excited for? I mean, you're leading the witness in a few ways here, but I would say that each wave brings things that we couldn't imagine. And I look back to driverless cars and there was a promise that that was like 5 years away. And it turns out like 20 years from now, I saw Whimo driving around London.

01:28:48 I think it's coming here soon. We're not quite there. And yet we're back in the it's slow, slow, slow, and then it feels like overnight. And of course, if you were involved, if you're involved, and this is again the intoxicating part of what we do is, you know, before the world knows or the world cares, but you know that it took a long time. And yet I think we're on the threshold of a lot of really interesting stuff.

01:29:13 Like I think that you and I could be buying the very last drive driven cars. Like I think that in 5 to 10 years time like our kids will not need to drive. And I think with AI we're on the threshold of a lot of that and there's a lot of doomsaying there always is but in terms of discovery in terms of what we know about the world in terms of health right in terms of you know you look at chemo and the number of friends of mine who have been treated or have passed away and you look at chemo and you go that is like

01:29:44 prehistoric and I think that we are with AI with the amount of compute going on in healthcare and other realms like there are solutions coming through, not fast enough, but I think it's it it's so exciting what we're involved in. >> It's very exciting for me too to hear you say that because I don't actually have a driver's license and so you could uh assuade me or relieve that necessity.

01:30:10 David, thank you so >> you live in the most walkable the mo in summer the most walkable wonderful city. You don't need a driver's >> Oh my god, dude. I never ever need to drive. Um thank you so much for doing this. Thank you so much for 11 years of friendship. Honestly, it means so much to me and you've always been so kind to me. >> Harry, you've gone from strength to strength and that's my wish for you is keep going from strength to strength.

01:30:32 You've been a great great voice in this environment, a great voice in the world. >> Thank you so much. >> Thank you.