The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:06:37 · Harry Stebbings, Erik Bernhardsson
[00:06:37] S1: Before we get into the market and everything beneath that, we were chatting downstairs, we often hear that founding companies is like eating glass. It's hard. It's painful. How do you feel about those? [00:06:47] S0: Dude, hate that stuff. It's like, I don't get it. Like, you're eating glass, like, every day. Like, why are you doing it then? Like, I don't know. You expect some, like, magic reward, like some big cookie in the end? Like, I never understood that mindset. I I think it's like this mindset that a lot of people have. I'm gonna suffer pain, and then there's gonna be this big reward in the end. I don't know. I don't think about it that way. I enjoy every day I go to work. Of course, there's, like, hard times. Like, there's, you know, you have to have hard conversations, maybe fire people, maybe, like, do hard things. But, like, in the grand scheme of things, like, I mean, such is life, and I enjoy life. I I enjoy building a company. And I don't I don't think of it as like one day we're gonna flip this company and be... I I hope to work on this for twenty, thirty, forty, fifty years. I'm having so much fun. I don't wanna sell this company because I would just go and start model two. You really wouldn't. Yeah. [00:07:29] S1: I [00:07:29] S0: don't I think money necessarily makes you happy. I mean, little bit. Like, it's good to have some money, but, you know, be on a point. Like, what... You know? I like building stuff. I love technology. I love coding. So much fun. [00:07:39] S1: You're such a sweet...
00:07:39 · Harry Stebbings, Erik Bernhardsson
[00:07:39] S1: You're such a sweet... [00:07:41] S0: Is that is that Swedish is that Swedish mentality? Maybe it is. [00:07:43] S1: Yeah. Dude, never has an American come on before and said it's not about money. I mean, I do care [00:07:48] S0: about money a little bit, but maybe you're right. Because I do think in Swedish mentality, it's like self actualization. Like, doing what you enjoy is kind of the highest form of prestige in a certain way. And it could be music, it could be poetry, whatever. It almost doesn't matter. What do you do that you don't enjoy? Yeah. I kinda hate fundraising, honestly. I mean, it's fine, I don't know. I enjoy it when there's good people, but it's kinda challenging. You have to say no to a lot people. I guess that's a good problem to have. But in general, it's Oh, you have [00:08:14] S1: to say no to a lot of people? Oh, Erik, [00:08:16] S0: what's I know, I know, that's a horrible thing. [00:08:18] S1: Oh, you can [00:08:19] S0: only have [00:08:20] S1: 10,000,000 not [00:08:21] S0: $50,000,000 [00:08:22] S1: You've never done a deck, have you?
00:08:22 · Harry Stebbings, Erik Bernhardsson
[00:08:22] S1: You've never done a deck, have you? [00:08:25] S0: I've never made a pitch deck, yeah. Every round we've done so far, I like to get to know people well in advance of raising money. So every round we've done, I mean most recently we announced a d round yesterday with Accel. I've been speaking to Rich and Gonzalo at Accel for I think at least a year. And at some point, we're like, actually, you know what? We could take some money. Like, what are the terms? Like, let's discuss terms. And then it happened very quickly because we already had that relationship. [00:08:51] S1: How do you think about price optimization? Is it a game of getting the highest price? [00:08:55] S0: No. I don't think so. I I think maybe in later stages, it becomes a little bit more of a commodity, like the money itself. But I I think in the early days, like, I mean, for for several reasons. Like, one is that there's a misalignment in Senate. Like, VCs always wanna put in way more money than a company needs. And that, you know, you just take on a lot of dilution. It's not good as a shareholder. But the other thing is, like, you actually wanna hold back, I think, and and it's often better to raise a lot less money at a lower valuation and then keep the VCs hungry for the next round. [00:09:21] S1: Is this not the generation, though, where actually capital is the moat and you need so much more money than you think? You said that VCs wanna give you more money than the company needs. I thought AI was finally the output exhaust for venture dollars that was needed.
00:09:21 · Harry Stebbings, Erik Bernhardsson
[00:09:21] S1: Is this not the generation, though, where actually capital is the moat and you need so much more money than you think? You said that VCs wanna give you more money than the company needs. I thought AI was finally the output exhaust for venture dollars that was needed. [00:09:34] S0: I think there are times in the market where you are capital constrained. We have not been capital constrained for most of the time of the company. We've been extremely capital efficient. We burn only a few million a month. I mean, like, know, it's a lot of money, respect for the money. [00:09:47] S1: You burn a few million a month? [00:09:48] S0: No, I mean, up until like last year. Now we have to spend a lot of money on capacity. [00:09:52] S1: How much do you burn a month now? [00:09:53] S0: A lot. I mean, we actually are profitable on a P and L basis, but cash flow is quite negative, because we have to spend a lot of money on getting GPUs and building out capacity. And so that is a different period in the company and how we think about capital. Capital is I don't want to call it a moat because, you know, I feel like people throw around that word, like, to mean things that kick Mote to me has, like, a very strict definition. But it certainly helps. Capital helps at this point. [00:10:17] S1: What's the moat definition for you? [00:10:19] S0: I mean, moat to me is like you go read like Seven Powers [00:10:22] S1: or like one of those Love Seven Powers.
00:10:22 · Harry Stebbings, Erik Bernhardsson
[00:10:22] S1: or like one of those Love Seven Powers. [00:10:23] S0: It's a good book. But I I think, you know, then people read that, and they get delusional, like... And, you know, they're like, yeah, we're starting this company. It has all these moats. You never had moats in the early days. Like, you know, like [00:10:33] S1: Google could do anything they wanted to. [00:10:35] S0: Google could do yeah, but it's also like, you know, like what are the seven I don't even remember. It's like cornering resources, like market power, like whatever. It's like none of those things happen until you're like ten years in, you know? There's an old blog post, I always come back to it by Ben Thompson. It talks about Snap and the like, the gingerbread man strategy. Do you know this thing? And it's like, the whole point is like, Snap doesn't have a moat, they just run faster. Like, they're the gingerbread man. And I actually always come back to that. I think that's so true, like, for almost every startup these days. It's like, you just have to, like, move faster than everyone else. [00:11:04] S1: I actually think the three things that matter to say when I invest is like, one, team. Are they top 1% team? Yeah. Two, speed of product decision making very specifically. You look at Instinct today. The speed of feature shipping is really very impressive and they're very, and then three is brand. Yeah. And I think those are the three determinants to me of defensibility, moat, but it's a kind of package.
00:11:04 · Harry Stebbings, Erik Bernhardsson
[00:11:04] S1: I actually think the three things that matter to say when I invest is like, one, team. Are they top 1% team? Yeah. Two, speed of product decision making very specifically. You look at Instinct today. The speed of feature shipping is really very impressive and they're very, and then three is brand. Yeah. And I think those are the three determinants to me of defensibility, moat, but it's a kind of package. [00:11:25] S0: Yeah, I mean, again, I don't know if I would... But I kind of agree with your point. I think brand, I don't wanna call it a moat, but it's actually, I think the value of brand has gone up a lot. [00:11:34] S1: Can I be a dick? [00:11:35] S0: Yeah, please. Do you [00:11:36] S1: think Modal have done well with brand? [00:11:39] S0: I think pretty well. I think we have, it's coupled with the developer experience, and the product, and the website, and the visual identity, and all these things. We just did an event in San Francisco, and I thought a lot about that, sort of how we package it, the event, and the visual look and feel and [00:11:52] S1: But like, do you think you have a bigger brand than Baseten and Fireworks?