This Week in Startups
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.
01:03:15 · Jason Calacanis, Tomasz Tunguz
[01:03:15] S0: Tomas, sounds like your fund. Sounds like what you're doing. [01:03:18] S3: I hope that's what it is. Yeah. We we... I mean, we're, you know, we're only about three years old. We've raised a little less than 800,000,000, and, we don't invest in very many companies. We put about 10 companies per fund, and and then we have a team that's actually forward deployed. That's great experience, it goes and builds the go to market functions of the companies. So it's not necessarily these businesses that reach profitability, I don't think we have a lot of conversations around how quickly a company can get to profitability. I think on the B2C side, so selling to consumers or product led growth where you can grow by yourself, there's no doubt that those businesses will be incredibly capital efficient and can finance their own growth. But a lot of software, even today because of the way that we're sort of educating people about how to modernize their businesses, requires lots of increasingly expensive people. [01:04:05] S0: I wonder how much of what we're experiencing is the tension between public markets, classic private markets, and this new weird thing in the middle, which is the trading of secondary. And so if we're sitting here, Elana, and you're doing a syndicate, sometimes are you buying previous people's shares or are you just doing primary?
01:04:05 · Jason Calacanis, Elana Gold
[01:04:05] S0: I wonder how much of what we're experiencing is the tension between public markets, classic private markets, and this new weird thing in the middle, which is the trading of secondary. And so if we're sitting here, Elana, and you're doing a syndicate, sometimes are you buying previous people's shares or are you just doing primary? [01:04:27] S2: I had at my previous syndicate, we did Anthropic and or all SpaceX. At my current one, we've been going direct, not really looking at secondaries too much. It's an interesting market right now. People are paying crazy prices. I think the really interesting thing I'm seeing is to get access to the next round funding. So many founders are like, oh, just do an uncap with a 10% discount or 15% discount. And then you're like, Okay, they just raised the round. It gets two weeks after it closed. You have no idea when they were going to raise their next round of funding. If you're etched or instinct, maybe it will be like three days from your last round. But I think it's super interesting that now you're seeing these uncapped saves and a lot of LPs are taking on this risk saying, Hey, can they execute? You have no additional numbers than their last round. And you're disagreeing to get into their future round of funding that you have no idea the price on. And I do think there's some opportunities that you say, Yeah, sure, we'll do uncapped. It's generational business. We truly believe in it. But seeing it more and more is pretty interesting. I don't know if they'll
01:05:29 · Jason Calacanis
[01:05:29] S0: That's a top of the market, we just don't do them. We don't do deals if we don't have pro rata info... Some basic information rights. I'm just like, life is short. Like, why would I do that? But it was really interesting, D. A, is as this middle boiler room kinda before public after the VCs have done this work, there's just like this boiler room of people who are just trying to trade in and out of the stock and get a percentage. So they're like, unlike us who, you know, we want to be fans of the company, we want to know the founders, we want to be part of the team, and, you know, even if we're not working there every day, and it's like... There's a great esprit de corps around this concept. We've now inserted a boiler room trader mentality to the industry where just... I'll take 10% of whatever I sell. So you want $10,000,000 in this robotic company, dollars 10,000,000 in SpaceX. Yeah. Great. I'll just take a million dollars now, and I'll get the trade, and there'll be some fees. And who knows if the SPV is gonna be recognized by the company or not. Not my problem if it gets unwound.