Uncapped with Jack Altman
· Jack Altman, Kevin Hartz
[00:00:00] S0: I obviously want to believe that too. But can I give you the counter there? I’m curious how you manage it in the market? The counter is basically, look, I also don’t want to be thought of as an option, but $10M at a $100M sounds a lot better than $3M at $30M. I have $7 million extra dollars to go hire a team, run my experiments, see where I’m at. That is the discrepancy that’s been created. So how do you navigate that as a seed specialist? [00:00:00] S2: We are a boutique firm, so we can’t be everywhere and we can’t cover every scenario. We find enough founders that are looking for a great partner to work with and to go through this battle. We’ve been through it before. I’ve been involved in founding a couple companies from inception all the way through IPO and beyond. We can’t win them all. I would also say, the challenge of this era—and maybe I’m biased by this—is that the amount of capital out in the market does mean that you don’t have as much help in oversight. I’ve seen more rookie mistakes being made in this environment that just shouldn’t have happened.
· Kevin Hartz, Jack Altman, Bennett Siegel
[00:00:00] S2: We are a boutique firm, so we can’t be everywhere and we can’t cover every scenario. We find enough founders that are looking for a great partner to work with and to go through this battle. We’ve been through it before. I’ve been involved in founding a couple companies from inception all the way through IPO and beyond. We can’t win them all. I would also say, the challenge of this era—and maybe I’m biased by this—is that the amount of capital out in the market does mean that you don’t have as much help in oversight. I’ve seen more rookie mistakes being made in this environment that just shouldn’t have happened. [00:00:00] S0: It’s funny, there’s a class of things that is very hard to sell in a fundraising process, in the quadrant of true/false, easy to sell/hard to sell. There is this set of things like what you’re talking about—help during the hard times—which I think is very hard. It’s real, but it’s very hard to communicate in a round process in a market moment like this. When markets are hard, maybe that resonates more. But when markets are really frothy, as it is in many ways right now, it’s just tough. It’s an interesting time as a seed specialist. [00:00:00] S1: We’ve seen this before. In 2021, that was the era where Tiger was offering every software company the lowest dilution, highest valuation offer. Solo GPs were promising very little help, but they were hitting the highest price bids at Series A. Most of those companies and most of those outcomes did not work. [00:00:00] S0: The pitch was, “We’ll be uninvolved.” [00:00:00] S1: Yes.
· Bennett Siegel, Jack Altman
[00:00:00] S1: Yes. [00:00:00] S0: The sell was, “We won’t talk to you.” [00:00:00] S1: A hundred percent. Building a company is a marathon, not a sprint. A low-dilution lead offer is relevant for founders. When we compete and when we win on deals, we’re not trying to get a value deal. We are also offering what we think is a low-dilution competitive offer, and support and partnership and things that founders should care about. [00:00:00] S0: I know you start at seed, but you do seed, A, and B. So you’re very in tune with all of those market stages. What have you seen over the last six or 12 months in terms of how these rounds are happening in succession, where valuations are going, how dilution is happening across them? What are the trends along those rounds?
· Jack Altman, Kevin Hartz
[00:00:00] S0: I know you start at seed, but you do seed, A, and B. So you’re very in tune with all of those market stages. What have you seen over the last six or 12 months in terms of how these rounds are happening in succession, where valuations are going, how dilution is happening across them? What are the trends along those rounds? [00:00:00] S2: I’d like to think that we’re not top ticking, we’re not there yet, but we’re headed to the mother of all bubbles. A historic precedent. If you think of the eighties and the personal computer and what came out of that era, or the nineties and the internet, and the two thousands and mobile… AI and the platform and the boom that we’re seeing right now is immensely exciting. We have such a global audience to reach. I think we’re going to have a few years of this continuing to grow. But unfortunately, as in capitalism, it always ends badly. I don’t mean end. We all know that after 2000, Amazon and Google and so on came out of the internet bubble. Now they’re multi-trillion dollar companies. Netflix and PayPal and so on. It’s an exciting time, but yes, capitalism is like a pendulum. It’s either too far one direction or too far the other.
· Jack Altman
[00:00:00] S0: It’s funny on the bubble topic. I have a friend at a growth stage firm, and he and I keep track of all of the signs that we might be in a bubble. It’s things like how quickly the rounds are coming in rapid succession, what are the degenerate gambling behaviors we’re seeing from people in and out of venture, what’s happening with SPVs. You go through this list, and a lot of the signs are there. The counter, which is a strong counter, is that there are a lot of extremely interesting companies. There are a lot of companies getting to $100 million of revenue with happy customers and crazy new technology, faster than ever. I’m guessing that you’re probably feeling a mix of, “Whoa, this looks like a bubble, but these companies look so interesting.”
· Bennett Siegel
[00:00:00] S1: We’re optimists by nature. That’s why we’re venture capitalists. In any platform shift, you’re going to have some incredible companies that come out of this vintage. In fact, they’re probably going to be larger than anything we’ve ever seen. But you’re also going to have a lot of companies that aren’t going to go the distance. We all see it in our portfolios. Who’s building durable revenue streams? Who’s building moats around their business versus what the labs are offering? If we’re doing our jobs correctly, we’re going to find these handful of companies that matter. But there’s going to be carnage in their wake, and not every company is going to make it. That’s true in every prior cycle. The other thing I would say is, what’s changed since we started A*? Seeds used to be $20M to $30M posts. They’re now $40M to $50M. A great Series A used to be $100M post. Now they’re happening at $250M. Series Bs used to happen with real traction at a few-hundred-million-dollars valuation. They’re $500 million, $1 billion. Everything has changed, particularly as large funds have gone earlier. This will end absolutely fine for the best companies that will continue to grow and mature, but it will also be more challenging for founders that struggle to raise above their pref stack and don’t go the distance.