This Week in Startups
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.
01:00:39 · D.A. Wallach
[01:00:39] S1: Right. Well, I think this is... Again, this is like the great tension of this moment. Probably the best businesses that are gonna get started in the next several years are gonna be started by these incredibly capital efficient young hustlers who are AI native. And the investment opportunity to back them is probably gonna be small because they're alicorns. They wanna fly over the rounds. They don't want a VC on their board. They don't want to go through this gauntlet that has been standard for the past twenty years. And what I see is that they're financing their companies through their social network. I mean, they don't want to go to some big fund. Like why would you go to Sequoia unless you really need a lot of money? And to me, everything about that press release is really smart with the possible exception of the $10,000,000,000 number. I'm not saying they're doing something dumb for their business, but you have to ask what is the product of a venture capital firm as far as its LPs go? And what it has meant historically was that it was a high dispersion of returns, but the really good venture funds were going to deliver just these unimaginably higher rates of return. Very, very hard to do that with $10,000,000,000 no matter what you're doing right, no matter how smart you are. So that's the challenge. We're in this moment right now where as these intergenerational transitions are taking place at all of these firms, the founders want to monetize in many cases by taking their firms public. And that's what you've seen with Blackstone and Ares and Apollo and all these other big asset managers and other asset
01:02:28 · Jason Calacanis, D.A. Wallach
[01:02:28] S0: Ackman is public, I think, Pershing Square. [01:02:30] S1: Ackman took his thing public in a closed end structure. Now I think you're gonna see Andreessen try to go public and you may see other traditionally venture funds because try to go that's how you monetize the equity that you've built up as the last generation founder of one of these things. And that just fundamentally changes the nature of these businesses. I think ironically what it creates is sort of an emerging for small agile funds who are just playing the old venture game. Small funds deeply in the social networks of the most compelling young founders in the world. And they're the ones who are gonna have a really good shot at getting this you know, sort of alicorn class. [01:03:15] S0: Tomas, sounds like your fund. Sounds like what you're doing.