How I Invest with David Weisburd
00:44:02 · David Weisburd, Jack Selby
[00:44:02] S0: Perhaps not surprisingly to listeners, I'm very optimistic on venture capital. I'll tell you why. So venture capital is known as this access class Mhmm. Where the founders choose the VCs, and the top VCs, at least, choose the top LPs. And my thesis is that the reason that Anthropic, SpaceX, OpenAI, the reason all these startups essentially had to go public was not because they just suddenly decided, well, it's time to bring back liquidity. SpaceX had tender offers. OpenAI had tender offers. Anthropic, I'm sure the the early employees are are are not too worried about about their liquidity. So I actually think the reason it goes back to this kind of consensus and venture capital, 75% of q one twenty twenty six of the entire venture capital funding was put into five companies. [00:44:55] S1: Mhmm. [00:44:56] S0: Said another way, they wouldn't have room to do another round. If they did another round, they'd be approaching a 100% and now over a 100%. So I actually think if there was more capital, let's say it went from 3,500,000,000,000 to 7,000,000,000,000, now you would actually have the Anthropic, OpenAI's, and SpaceX doing one or two more rounds staying private because as we know, there's a preference for top founders to stay private. Mhmm. And that would be much more advantageous to both the startups, to the founders, to even early stage VCs. They have higher multiples. What do you think about that?
00:45:28 · Jack Selby, David Weisburd
[00:45:28] S1: The AI boom that is happening right now and has been going on for many years, it's very different, say, than the Internet period when we were putting together PayPal in the sense that the current market is very CapEx intensive. So you have energy needs. You have chip needs. You have data center needs. The list goes on and on on. You basically had none of that during the PayPal days, the doc... The .com days. And so because of the CapEx intensity, you have a tremendous off the charts amount of storytelling to essentially fuel the fundraising. And so when this kind of cycle corrects, and, like, Cliff Asness, who was on your show not too long ago, you said it perfectly. Like, it's it's never different this time. Like, this will correct. And when it corrects, there's going to be tens, if not hundreds of billions of dollars that are going to get zeroed. It's just a fact. It's an absolute fact. And I would actually... I would challenge in saying that anyone who doesn't believe that there's an AI bubble is an absolute contrarian today. Like, that just seems like a ludicrous proposition. Like, it is such a clear How do [00:46:41] S0: you define that? [00:46:41] S1: Whether it's the circular trading or the valuations, the multiples. I mean, the list goes on
00:46:41 · Jack Selby, David Weisburd
[00:46:41] S1: Whether it's the circular trading or the valuations, the multiples. I mean, the list goes on [00:46:46] S0: and on. Because two things could be true at once. One is 90% of companies could be overvalued, and also the expected value of the vintage could still be high. I think that's what a lot of investors are trying to grapple with what... They get that all these pre revenue companies can't be worth under a million dollars or a billion dollars, But they also are unclear, I think, whether there's gonna be another $1.02, $3,000,000,000,000 company in the batch. And I think probabilistically, it's it's probably very pessimistic to assume that the first three years of AI produced two arguably $3,000,000,000,000 companies, and now we're not... Now it's game over. No no more trillion dollar companies.
00:47:24 · Jack Selby
[00:47:24] S1: I respectfully disagree because I think there is an angle where AI enables companies to be built much more cheaply, achieve revenue much more quickly, get to good outcomes much more quickly, and generate good, if not great venture capital returns without the fixation of, oh, I have to go build an extra trillion dollar company. Because I think people are so caught up in the zeitgeist of SpaceX and Anthropic. These are once in a generation, if not once in a lifetime type companies. And the idea that they come around with any sort of regularity, I think, is ludicrous. And we have to move away from that because if that's what you're pitching, you're again pitching something that's outrageously improbable that you're gonna find at an early stage, and then the duration is gonna be very extended. And that's a poor combination. And so that's why I I fundamentally disagree with that kind of perspective. AI, again, those two things being equal, is an amazing tool, but what about building great companies that don't have to be trillion dollar outcomes? That is a mentality that is totally lost in Silicon Valley. And, again, I I love Silicon Valley with its audaciousness, and it's actually to give give to give fairness. It's the one aspect of my geography where I invest noncoastal that I'm the most envious of Silicon Valley. This is probably my biggest challenge. Like, when I meet that entrepreneur in Milwaukee, is he or she... Are they going to be able to work their tail off and get me to one of those minimum $500,000,000 type outcomes? Because oftentimes, he or she will take my money because they think venture capital is special or sexier, whatever it may be, and they're gonna work their tail off, go through blood, sweat, and tears, all these near death experiences. Like, okay, Jack. We're gonna sell this widget for a $100,000,000, five or seventeen years out. Say, no. No. No.
00:49:07 · David Weisburd, Jack Selby
[00:49:07] S0: And that's because on a relative basis, they'll be one of the richest people in Milwaukee. [00:49:10] S1: And god bless them for being the wealthiest person in Milwaukee, but that's not what my money's for. Like, I have to have that minimum $500,000,000 type outcome with my first fund in order for my math to work. I don't have to find a trillion dollar company, but I have to have that minimum $500,000,000 outcome. And too often, have found, and this is going back to the analogy of me being a talent scout, I have to make sure that my entrepreneurs are sufficiently grandiose when they take my money. Like, buddy at Greylock coined this phrase that I've stolen. You have to have equal bits, grit, and grandiosity. Grit, I've got all day long in Milwaukee and Cincinnati and Phoenix. What I often have to be much more on the lookout for is the grandiosity piece. [00:49:49] S0: Reminds me of a Jason Lemkin tweet, which I think it was during COVID where he said, in San Francisco, I'm unhappy but productive. Outside of San Francisco, I'm happier but less productive. Therefore, I will stay in San Francisco. So I I think there's something to that. There... There's this memetic copying where, sure, you might have $20,000,000, but if your neighbor has a $100,000,000, now you're suddenly unhappy. And people generally look at this as as a negative in terms of happiness, in terms of productivity, it's a very positive kind of capitalistic type drive that that leads a lot of these submarkets like a San Francisco.
00:49:49 · David Weisburd, Jack Selby
[00:49:49] S0: Reminds me of a Jason Lemkin tweet, which I think it was during COVID where he said, in San Francisco, I'm unhappy but productive. Outside of San Francisco, I'm happier but less productive. Therefore, I will stay in San Francisco. So I I think there's something to that. There... There's this memetic copying where, sure, you might have $20,000,000, but if your neighbor has a $100,000,000, now you're suddenly unhappy. And people generally look at this as as a negative in terms of happiness, in terms of productivity, it's a very positive kind of capitalistic type drive that that leads a lot of these submarkets like a San Francisco. [00:50:21] S1: In an ideal world, like, I would love it when young entrepreneurs go to the Bay Area right out of school from one of these noncoastal places and then move back. And so they've been infected. [00:50:30] S0: They could see what [00:50:31] S1: They've been infected by the grandiosity in Palo Alto. Yeah. But they didn't they didn't stick for whatever reason, and they moved back to Phoenix Milwaukee or Cincinnati or Houston. [00:50:39] S0: That's the best model? [00:50:41] S1: With our first fund, we saw kind of an equal split between folks that had done some version of that and then just homegrown entrepreneurs. But I certainly look for it. And because if you've been in Palo Alto and you've seen that work ethic and you have that grandiosity and you just kind of learned how things work, and you can then come back to one of my geographies at a more reasonable price for me as an investor, you bet. That's a great combination.