Bennett Siegel says management fees of 2 and 20 make little sense for large funds that in practice index late-stage assets, and A* is built to win only when founders win.
Kevin Hartz predicts the current AI boom is heading for a historic bubble, though he notes the internet bubble produced Amazon and Google.
Bennett Siegel says seed post valuations have risen from $20-30m to $40-50m, while Series B rounds now reach $500m to $1bn.
A* stays small while giant funds chase the AI boom
A* is a roughly $1bn seed firm betting that staying small and founder-aligned beats the giant funds now dominating venture. Funds of five to fifteen billion dollars index late-stage assets and charge full fees, while prices climb toward what Hartz expects to be a historic bubble. A* answers with concentrated seed bets, reserves for its winners and relationships that give it early access.
Takeaways
Giant funds have misaligned incentives with founders. Siegel says 2 and 20 fees make little sense for funds that effectively index late-stage assets, since long-only public funds charge 1% and 10% carry over a hurdle. Hartz adds that attention to founders falls as funds grow, and LPs cannot negotiate fees down.
Hartz sees a historic bubble forming. Seed post valuations rose from $20-30m to $40-50m, and Series B rounds now reach $500m to $1bn. Hartz notes the internet bubble still produced Amazon and Google. Siegel says most of the 2021 Tiger-era software outcomes failed.
Founders are getting younger and more research-driven. Hartz notes Jobs and Gates were 19 at founding and the Thiel Fellowship began in 2010. Siegel says young founders adopt new AI tools first, and lab and PhD researchers are a new kind of founder. Palantir and Jane Street supply talent.
**Pseudo-proprietary deals drive A*'s seed returns.** More than half of A*'s seed investments came through prior relationships. Siegel says these deals disproportionately generated returns but are more volatile, and some give only three days to decide. Hartz calls the Decagon seed a no-brainer given the team's history.
Seed needs concentration and heavy reserves. Most seed companies fail, so Siegel says funds must concentrate on a few winners. A* holds roughly 40 seed companies, with three to five taking most capital, and does its pro rata at Series A. Follow-on decisions often matter more than initial checks.
**A* will avoid rollups and back AI applications.** Siegel says rollup founders keep 80% of profits, but VCs are bad at buying assets at the right multiple. A* will instead back application-layer companies, robotics firms like Watney Robotics, and research spinouts like Simile, expecting labs to compete in applications.
Where Altman pushes back on the small-fund case
A big fund must still clear return thresholds to keep raising, and a billion-dollar fund's extra capital can flow into seed rounds.
Siegel describes seed as option value in a basket of companies. Altman says founders may resent that framing.
Altman argues a $10m stake at a $100m valuation beats $3m at $30m. Hartz replies that A* is a boutique that cannot cover every deal.
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