This Week in Startups
00:52:42 · Thomas Tunguz, Jason Calacanis
[00:52:42] S3: Yeah. I mean, obviously, legendary firm, clearly have terrific people leading the operation. I think a couple of different... The things that stood out to me, one was the unification of the early and the growth. Why is this? Well, it's because if you call a seed stage company a seed stage company, the odds are that it's a $5,000,000 investment, a $50,000,000 investment, or a $500,000,000 investment are roughly equal. This is a bit tongue in cheek, but the idea that we had T shirt sized financing rounds ten years ago, now any one of those can be a seed. And so the structure of an early fund versus a growth fund no longer really applies applies in this ecosystem because if you have a team of wonderful PhDs or researchers coming from a new lab, they might need 300 to $500,000,000 just to prove the idea, the same way that say a biotech would in order to reach that first milestone. And so you need really big funds in order to supply them, hence the unification of those two funds. I think that's a really smart move. [00:53:40] S0: Elana, you have a thought there about what's going on at Sequoia and the emergence of these mega funds. Sequoia fought it off as long as they could. They wanted to stay small, bespoke, stick to their knitting, but they had to raise growth funds. They had to do bigger things with other players. Yeah, Menlo, Andreessen Horowitz, etcetera, going big. If everybody's going big, you kind of get left out, right?
00:54:07 · Elana Gold
[00:54:07] S2: And I think over the past kind of five years, a lot of these venture funds have become incredibly complicated businesses. They have their accelerator, they have their scout fund, like kind of everything that you just discussed. And I think at the end of the day, if you look back at their returns, their job is to find exceptional founders and then continue to invest in them over the course of the series A, the series B, etcetera. And so I think what they're saying is, first off, you still have to continue to make those decisions. Even if you invest in a company at the series B company, it could still make generational returns. You invest in SpaceX at the Series B price, your fund would have done great. And so I think by combining that all, they're saying, Hey, those decisions are just as important as the early stage companies as they are the later, because they'll just write a bigger check for the same ownership. I think the one part that was really interesting about this is shutting off their scout program. And you probably have a lot of thoughts here because you're like, Hey, me and Sam found great companies. Like, why would you ever kind of take this away? Because there's some people who don't necessarily want do VC full time, or maybe they do in this as their step in, or there's some founders in your network that could really find these. Why take away those specific people that you have early on? Because what do you really get from doing that? You just had people going out and finding the best company as if they work great if they didn't. I'd be super curious to know the numbers that came from this. I mean, they must have done a lot of research to be like, Hey, we have these scouts. Maybe they weren't the best companies in our portfolio. So like, why are we doing this? And I think there had to be something that came from this decision that ultimately led them to decide not to do it.
00:55:37 · Jason Calacanis
[00:55:37] S0: I think it's complexity. It's obviously sad for me because I was literally the first one. They... Roelof called called me and said, we have this idea for a program. We want you to be the first scout. And then it got to hundreds of them. It was their way of kind of recognizing there's so many companies out there. We can't possibly meet with them all. We can't possibly process them all. And we... There was a signaling issue in the early days of venture capital where if you did the seed or you put but a 100 or 250 k, and we were putting 25 and 50 k checks in originally, then it went to a $102,150. If you didn't do the next round, then you basically damage the company by not doing the next round. Because everybody would say, well, why Sequoia not doing it? They're they're the best in the business, so you're the loser in the portfolio. So this is a way for them to say, we have no control over the scouts program. If Sam Altman wants to write a check, if Jason wants to write a check, they write it. We don't. All they have to do is submit it. We we fund it. So it was a way to get around that originally and spread a wider net. And, you know, everybody copied it. So now everybody's got scouts. So the originator of it's getting rid of it. Maybe they just think we want to be simpler and we have such a great reputation. Everybody's going to come to us at some point. And to Thomas' point, if we get... And your point as well, Elana, we don't have to get them in the beginning. We can get them in the middle. We can get them in the end. If it's truly a generational company, we just have to get in there at some point. So we just need really great partners, a really great reputation, and we could miss it.
00:57:10 · Elana Gold
[00:57:10] S2: I don't think Sequoia, given that their brand and now how well they've done over their last few fonts, is having any issue getting in touch with the founders. So I think that also takes into account where they're like, hey, maybe we don't need these smaller guys getting it, and we can just do it from all the people who work here full time, and we'll just continue to invest in the best companies.
00:57:28 · Jason Calacanis
[00:57:28] S0: I do think they should have kept going on ARC, and they should have expanded that program. A 16 z DA is being incredibly aggressive with their speed run program. And they're accepting people to speed run at, you know, in week 10 or just like... We had one company that I think got accepted, like, two weeks before the demo day. And I think they just have really good terms. They put in 500 at 5,000,000, then they have the option to put another 500 in at 20,000,000. So they just have this way to get to 10 or 12% of the company with the super pro rata option, which they copied from me. My common moneyer copied from me. I put that into our early documents with our accelerator. But it's hard work at the beginning. And then, you know, with these programs, they're really like kinda... I don't wanna say cut you off, but you kinda have to cut people off, or else you'll have... You'll wind up having thousands of companies that you have a small percentage ownership in that expect you to perform for them like you have a board seat. And that just becomes very untenable for these programs. So that's why you create program. It's like, hey, we're going to make a quick check and then move on. I don't think many people want to work in the earliest stages. I don't think people wanna do year one and year zero work because the late stage is so profitable, D. A, which is why I popped up the barbell strategy with the syndicate. My syndicate members kept saying, can we get into Zipline? Can we get into Travis' new company? So I said, Okay, I'm not going to just fight it on principle. That's what the members want. Let me go ask people. So I asked TK, can I get an allocation? I asked Zipline if we can get an allocation? And Vast Pass, can we get an allocation? And everybody says yes. In fact, out of six companies, everybody said yes. The only one I wasn't able to get an allocation in was Waymo because they were massively oversubscribed and Google wanted all of it. Or we would have done an allocation there.
00:59:11 · D.A. Wallach, Jason Calacanis
[00:59:11] S1: I think you get it. I mean, let's put this in the context of what you said last week here on the pod, which was that the next wave of unicorns are alicorns. And I love this, right? [00:59:23] S0: Can you suck with me? [00:59:24] S1: Before I say my thing, I want you to just regurgitate what an So alicorn [00:59:28] S0: two or three people can get a company to $1,000,000 Forget about ramen financing. They can just do it on the weekend. You have people doing this on a regular basis now, building a product with AI, getting 10,000 to 50,000 to $100,000 a month in revenue, and then coming to us and saying, hey. I got this business. Is is it venture ready? And we're like, yes. Yes. It is venture ready. You're at a 500,000 in revenue. So I believe unicorns, are are billion dollar valuation companies. And Alicorn has wings, and they fly over funding rounds. Many of the companies I'm seeing right now don't want to raise money. They're like, we're profitable. Why would we raise money? I say, oh, rainy day fund. Maybe you want to be able to buy something. What if the market has a pullback and you become the acquirer as opposed to the person who gets acquired because you run out of money? And they're like, But we're profitable. It's a pretty great argument. So it's going to be harder for venture firms to get a good price and have a decent entry price if founders believe, hey. We we don't need you. We don't need your money. And so then that argues to get in early or get in late and be essentially like a crossover hedge fund.