Latest / The Learning Corner by Precursor / Episode #39: Adopting Parent Investors, The Art of Curating Fund Manager Investment Opportunities, AI Product Pricing Today

Transcript

Episode #39: Adopting Parent Investors, The Art of Curating Fund Manager Investment Opportunities, AI Product Pricing Today · The Learning Corner by Precursor

• 0:00
  I've been in some board meetings where the person comes in and you're like, this person
• 0:03
  does not wanna be here.
• 0:04
  And if it really isn't a fit, as a founder, you should go back to the firm and be like, hey,
• 0:08
  this person either doesn't show up or doesn't seem that interested.
• 0:11
  I'd rather take a more junior person as a learning experience who's excited about this
• 0:15
  than a more experienced person who doesn't care.
• 0:18
  It's the week of July 7.
• 0:21
  Welcome to the Learning Corner, a Precursor Ventures podcast.
• 0:28
  Welcome to the Learning Corner by Precursor.
• 0:30
  I'm Mia Farnam, and I'm joined by our GP and managing partner, Charles Hudson, where we will
• 0:35
  be talking through the articles and Goodreads that caught our team's attention over the past
• 0:40
  week.
• 0:40
  We took a break on the pod over a fourth of July week, and we're really excited to jump
• 0:45
  into this week's topic.
• 0:46
  But before we do, I did wanna share a shameless plug about our upcoming pre seed boot camp that
• 0:52
  Precursor Ventures is hosting on September 25 in New York City.
• 0:55
  It's a full day of programming for people who are maybe early on in their startup journey or
• 1:01
  thinking about starting a company, and we bring in early stage investors in our network,
• 1:05
  founders across our own portfolio, and incredible lawyers who've made their entire
• 1:09
  careers supporting startups and a lot more.
• 1:12
  And it's application based, and we'll be launching that at the end of the week on our
• 1:17
  website and social channels.
• 1:18
  So definitely be on the lookout for that.
• 1:20
  It's one of my favorite things that we do.
• 1:23
  This will be the third installment, but the first one we've done in New York.
• 1:26
  And I really enjoy these because it's a chance to spend a bunch of time with people and get to
• 1:32
  know them in a nontransactional, non pitch format, which for me is very hard to do.
• 1:37
  So a lot of the alums of our boot camps in the past have become friends.
• 1:41
  Some of them we funded.
• 1:42
  Some of them we've helped get funded by other people.
• 1:44
  And so I'm excited to do this in New York.
• 1:46
  Be on the lookout for that.
• 1:47
  Let's get into it.
• 1:48
  Following the news that Eric Paley, cofounder of Founder Collective, has been appointed
• 1:53
  secretary of the executive office of economic development for Massachusetts.
• 1:57
  Our first topic is written by Eric's longtime partner, Micah Rosenblum, who shared thoughtful
• 2:02
  reflection on a frequently occurring dynamic in venture.
• 2:05
  It's the adopting parent investor.
• 2:07
  When a key investor or board member transitions off a company, whether for retirement, a new
• 2:12
  role, or life changes, it can leave founders in a vulnerable spot.
• 2:17
  Micah unpacks how stepping into an inherited investor relationship isn't just about capital.
• 2:22
  It's about continuity, trust, and honoring the history that's already been built.
• 2:26
  He offers principles for doing this well, including being up front about your newness,
• 2:31
  committing fully to the roles, so cutting down on revolving doors, and avoiding the trap of
• 2:36
  trying to be a one to one replacement.
• 2:39
  If you are in venture, you know this adopting parent investor concept happens frequently.
• 2:45
  Having seen boards across 450 plus companies across five funds, Charles, curious what your
• 2:50
  thoughts are here after reading it.
• 2:52
  I read this and I thought it was the best articulation of this that I've seen to date.
• 2:56
  And I've experienced it from literally every dimension possible.
• 3:00
  When I had my last startup, we had a partner transition out of the firm that had led our
• 3:04
  seed round.
• 3:05
  And we got replaced with someone else who is a friend, who I love and adore, but knew nothing
• 3:10
  about what we were building.
• 3:12
  Like, we were building a games company, and games was not this person's domain of
• 3:15
  expertise.
• 3:15
  The person had never been to a board meeting, and he did his very best to be a champion and
• 3:20
  an advocate.
• 3:21
  So I I've I've seen it from a founder experience.
• 3:23
  We've had some folks depart precursor, and I've inherited portfolio companies and have tried to
• 3:28
  figure out a way to be helpful with those companies without, again, to Micah's point,
• 3:31
  trying to replicate who the people are who made the investment because they're them and and I'm
• 3:36
  me.
• 3:36
  And I've also been on boards where, like, a new person shows up from another firm and you're
• 3:40
  like, well, how's this gonna work?
• 3:41
  And I think probably in the most challenging of all, a very close friend of mine who I was
• 3:45
  involved with passed away and one of his partners had to step in.
• 3:48
  And I think this is becoming a much more common issue and venture because it used to be people
• 3:53
  didn't really leave firms and people didn't get fired, pushed out, asked to leave, decide to
• 3:59
  leave, whatever.
• 3:59
  There just wasn't that much turnover.
• 4:01
  And now we're in a world where I think there's just a lot more turnover in venture.
• 4:05
  And, you know, rules I used to give people were just like, oh, if you have the managing partner
• 4:09
  and founder of the firm on your board, you're probably safe.
• 4:11
  That person's not going anywhere as we just saw with NFDG.
• 4:15
  Even the managing partners of the firm can leave, and with some of the firm breakups we've
• 4:18
  seen, that's not safe.
• 4:19
  So one thing I've noticed is a lot of the firms that plan to be around for a long time and have
• 4:24
  capacity to do so, I think have started staffing a one plus one model, where there's a
• 4:29
  primary person on the board or primary point person, but there's somebody else who's the
• 4:34
  number two chair who's around and familiar with the company.
• 4:37
  If anything were to happen to the primary person, there is in fact somebody up to speed.
• 4:41
  This is really hard to do though if you're a small seed firm and you're maxed out on board
• 4:45
  capacity and maybe only have two partners.
• 4:47
  You're like, look, we can't have every partner and every deal.
• 4:49
  But I do think it's more important than ever to think about what you're gonna do.
• 4:53
  And I think the one thing that Micah said of all the things that I think is really important
• 4:56
  is don't try to be the person you replaced.
• 4:59
  Just come in and be yourself.
• 5:00
  And also just recognize that it's probably a big deal for the founder to lose their
• 5:05
  advocate.
• 5:06
  I have a founder in our portfolio where the person she chose a firm literally to work with
• 5:10
  one very specific partner, and that partner left.
• 5:13
  And the founder was devastated and said, what do I do?
• 5:15
  I said, well, you should go to that firm and pick whoever you're most excited about working
• 5:19
  with because I'm sure they wanna keep you happy.
• 5:22
  And this is a window for you to say, this is what would keep me happy.
• 5:25
  And she ended up picking somebody who she's been really happy with.
• 5:27
  But I think this is gonna become a recurring problem.
• 5:29
  I have a feeling this is a post that people are gonna reference pretty often.
• 5:32
  And especially in this time of an increase on secondaries where maybe your switch off the
• 5:38
  board is happening a little bit sooner.
• 5:39
  I feel like for early stage investors, especially when you come super, super early,
• 5:42
  you come off boards or you join in on companies before boards are even created.
• 5:46
  But the fact that you could possibly jump out of the journey earlier on than maybe founders
• 5:50
  had anticipated is a new one entirely.
• 5:52
  But it doesn't break the relationship in a 100% capacity level.
• 5:56
  And I feel like you can speak to that being the first check-in for companies that are now at
• 6:00
  series d and have exited and beyond.
• 6:02
  Also, have people who've left their firm but are still close to the company Yeah.
• 6:06
  And still provide some level.
• 6:07
  It's interesting.
• 6:08
  When I left Unicorn, I had a handful of companies where I was still their primary
• 6:12
  contact.
• 6:13
  They didn't need very much But just from a continuity of relationship standpoint, I think
• 6:17
  that's the best of all worlds if people have the capacity.
• 6:20
  And obviously, if you've taken a political office, there's not really any way to be a
• 6:23
  venture partner to the side.
• 6:25
  That probably doesn't work.
• 6:25
  But I think wherever possible, always I try to think what's in the best interest of the
• 6:29
  entrepreneur.
• 6:30
  And oftentimes, it's some ramp down with your original person while you're ramping up with
• 6:35
  your new person is the best if you can swing it, but you can always swing it.
• 6:38
  Right.
• 6:38
  And then along with not trying to be the person that came before you from a one to one ratio, I
• 6:44
  think Micah said another valuable piece of advice was displaying your newness rather than
• 6:48
  pretending expertise.
• 6:50
  I know that a lot of investors in this space, that's kind of like their favorite thing to do,
• 6:54
  pretend expertise, but I actually find in these scenarios, it's the most harmful thing that you
• 6:58
  could do.
• 6:58
  I think we've all been on it on the other side when an investor comes in and just blurts all
• 7:02
  these things that they assume about your business without having built that relationship
• 7:06
  prior, and that's actually quite harmful and disruptive for founders.
• 7:10
  And I think not all of the catch up needs to happen in the board meeting.
• 7:14
  Yeah.
• 7:14
  But I do think whenever I've been new, I've been like, how can I show up to the board
• 7:17
  meeting with the most context?
• 7:19
  Sometimes looking at the old board materials is helpful.
• 7:21
  Sometimes talking to the current board members or outgoing, like, hey, what are the big issues
• 7:25
  at the company?
• 7:26
  Oh, the VP of marketing, the VP of sales, or So you have some context, but look, it's
• 7:30
  inevitable that there will be things that the board has discussed before that will strike you
• 7:33
  for the first time, and I've always used this disclaimer.
• 7:36
  It's entirely possible that you guys have talked about this before, and I assure you over
• 7:40
  time there'll be fewer of these.
• 7:41
  But why are we doing x y and z thing and not a b and c thing?
• 7:44
  And I've always been surprised.
• 7:45
  Sometimes people are like, well, you know, we did talk about that two years ago, but it's
• 7:48
  probably worth revisiting Yeah.
• 7:50
  Because things have changed, or the world's different, or here's some new piece of
• 7:54
  information that we didn't have at the time.
• 7:55
  And so I do think sometimes being new with fresh eyes is actually helpful and allows you
• 7:59
  to provide context in a way that someone who's been doing it for a while won't or can't.
• 8:04
  And I find for even folks who maybe are the more junior replacement for somebody who came
• 8:09
  before you on a board, the most valuable piece of advice that I think I got from another
• 8:13
  managing partner at a different fund was the best set of skills you can develop early on in
• 8:16
  those boards is being like a very active listener.
• 8:18
  You don't need to make a splash and create a whole host of seven different ideas that you
• 8:21
  have for the roadmap of the company.
• 8:23
  I agree.
• 8:23
  Any recommendations, Charles, for founders on navigating this that you already haven't
• 8:27
  provided?
• 8:27
  I do think it always good to find out who's going to be the person taking over.
• 8:33
  Two things, what's their baseline knowledge of the business?
• 8:36
  And candidly, what's their baseline level of interest?
• 8:39
  Not to use a Curb Your Enthusiasm reference, but sometimes these things get foisted on
• 8:43
  people.
• 8:43
  And it's not fun when I've been in some board meetings where the person comes in and you're
• 8:47
  like, this person does not wanna be here.
• 8:50
  Yeah.
• 8:50
  This person drew the straw that they had to take this board seat and like, their body
• 8:54
  language from day one is such that my firm is making me do this.
• 8:58
  And if it really isn't a fit, as a founder, you should go back to the firm and be like, hey,
• 9:02
  this person either doesn't show up or doesn't seem that interested.
• 9:05
  I'd rather take a more junior person as a learning experience who's excited about this
• 9:09
  than a more experienced person who doesn't care.
• 9:12
  And so I'd say, if the first match really is a misf ire, don't be shy about going back to the
• 9:16
  firm.
• 9:16
  Also, everyone else on board who's remaining there is probably knows that too.
• 9:20
  Mhmm.
• 9:21
  Yeah.
• 9:21
  Our next topic is a recent episode from the peel with Turner Novak featuring Samir Khaji,
• 9:27
  co founder and CEO of Allocate, where they have a conversation for more than an hour about all
• 9:32
  types of happenings across the venture landscape.
• 9:34
  They break down the current shifts across the VC industry, walk through the importance of
• 9:38
  entry price in this era of secondaries, advancement provided by AI that SaaS companies
• 9:43
  should have a strong pulse on and a lot more.
• 9:46
  They talked a little bit about Allocate, which is the company Sameer created to transform the
• 9:50
  private market investing experience by building a curated, managed marketplace for financial
• 9:56
  advisors to have exposure and access to private market investing opportunities.
• 10:00
  Samir and Turner talk about what Allocate got right on the platform that other private market
• 10:05
  aggregators have gotten wrong.
• 10:07
  So wanted your perspective on that from a fund manager perspective first.
• 10:11
  I'm a huge fan of Samir and and Hannah.
• 10:14
  As they know, Samir was, I think, the first person to ever make meaningful family office
• 10:20
  intros to me when I was starting fund one.
• 10:22
  I remember, you know, RIP First Republic.
• 10:24
  But I remember going to his office at First Republic and sitting down with him and going
• 10:28
  over my deck.
• 10:29
  And his first ask wasn't, let me set you up with a bank account.
• 10:31
  His first ask was, let me get you in front of a few family offices who I think would be
• 10:35
  interested in your pitch.
• 10:37
  And he's always had this spirit of giving in a way that it's beneficial for both the person
• 10:43
  he's helping and the person he's introducing.
• 10:45
  So I hope he and Hannah and the team continue to be a positive force for the ecosystem.
• 10:49
  I really like this episode.
• 10:51
  I don't always listen to things north of an hour.
• 10:53
  It's a big ask.
• 10:54
  But in this case, I really did feel like there were a lot of really important things that got
• 10:59
  discussed.
• 11:00
  One was, if you're a fund manager and you're struggling with positioning and marketing your
• 11:05
  fund, I really encourage you to listen to the middle chunk of this episode because a lot of
• 11:09
  the wisdom that Samir drops in this episode is about how to position and market yourself as a
• 11:15
  fund manager.
• 11:16
  And ironically, some of it is directly saying do this, don't do this.
• 11:20
  But some of it's also just talking about how they positioned Allocate.
• 11:23
  And I think one of the big things they understood was to have a product that works for
• 11:26
  the RIA and Family Office Channel.
• 11:28
  You need really awesome funds on the platform, but you also have to think about what are the
• 11:32
  problems that those folks are trying to solve.
• 11:34
  As somebody who's begrudgingly or maybe accidentally become an LP in over 40 funds,
• 11:40
  including mine, I have 50 different portal logins I have to go to to find my k ones and
• 11:45
  financial.
• 11:45
  There are all these challenges that they've solved, but I think they worked backwards from
• 11:49
  if we were gonna make this available to many more people, what would we have to solve?
• 11:52
  I think the other thing that I really liked about this episode is something that, you know,
• 11:55
  we're doing internally.
• 11:57
  Samir is playing with a lot of AI tools directly himself.
• 12:00
  And I just I think everybody should be doing this because otherwise, one of two things can
• 12:05
  happen.
• 12:06
  You can become overly cynical because you use chat GPT once and it hallucinated and you're
• 12:10
  like, none of the stuff works.
• 12:12
  Or you just read the headlines and you're like, oh AI is perfect and beautiful and magical and
• 12:16
  I'm not gonna have a job in awhile.
• 12:18
  And I think the answer is most of this stuff works well enough for you to see that it's
• 12:22
  gonna be a big deal in the future, but a lot of it still requires supervision.
• 12:26
  And I just thought Samir, I think, knows maybe more about the world of FOs and RIAs and how
• 12:32
  they're thinking about venture as an asset class.
• 12:34
  And there's just a ton of wisdom in, you know, everything from how do those folks really think
• 12:38
  about big firms?
• 12:39
  How do they think about portfolio construction?
• 12:41
  And then the thing that's hard to get, how do the clients of the people who are on allocate
• 12:45
  think about venture?
• 12:46
  And so I just thought it was a a really great conversation, and if you have time, it's well
• 12:49
  worth a listen, and he's got a lot of really good insights.
• 12:52
  Going back to your AI comment, I think a lot of my LP friends are maybe a little bit wary about
• 12:58
  using AI tools themselves or spending time learning about them, and I think that's the
• 13:01
  most valuable thing you can do because I assume that when you're getting pitched by fund
• 13:05
  managers, they're gonna tell you about all these different bespoke AI tooling that they
• 13:09
  built across the fund.
• 13:10
  And it all sounds really wonderful and unique, but if you take a look under the hood and if
• 13:13
  you did a little bit more research on your own, you would know that it's quite similar to what
• 13:17
  five other funds down the street are doing.
• 13:18
  And so I think that's the biggest benefit of actually making sure that you're getting smart
• 13:23
  on those things as well as the space is evolving.
• 13:25
  I think so.
• 13:25
  And I think the other thing that I'll say is I do think one part of the interview I really
• 13:30
  like, similar is like, look, I think a lot about, well, what are the many roles that
• 13:33
  Cambridge Associates fulfills.
• 13:35
  One is vetting fund managers on behalf of other people.
• 13:38
  And having spent time with Samir, I really think they have a point of view that I agree
• 13:42
  with, which is they want people to be successful in venture.
• 13:45
  They want people to put money into the category and get money back.
• 13:47
  But to do that, you have to invest in good funds.
• 13:50
  And somebody's gotta help you figure out what the good funds look like.
• 13:53
  And my fear is always that we'll meet down in the offices and they'll tell me they're in a
• 13:57
  bunch of funds.
• 13:58
  And I'm like, well, I know none of those funds have performed.
• 14:00
  And that is gonna color your viewpoint on whether a venture's a good asset class.
• 14:04
  So I think having somebody who can also be a bit of an arbiter of quality is really
• 14:07
  important.
• 14:08
  I talk about this a lot, of just having somebody who can kind of bridge and share a
• 14:12
  little bit more color on what's out there in the market for LPs to help make that decision,
• 14:16
  I think is something that Yeah.
• 14:17
  Amazing up across the ecosystem.
• 14:19
  A conversation thread that they both had was on the importance of timing the market from a
• 14:24
  selling standpoint for early stage investors looking to get liquidity from a secondary
• 14:27
  opportunity.
• 14:27
  A really good quote I heard was something along the lines of, you can't control the exit price,
• 14:33
  but you absolutely can control the entry price.
• 14:35
  So the price that you come in on from an initial truck running standpoint.
• 14:38
  How do we marry that concept and discipline with sky high valuations of companies raising
• 14:45
  money across AI today?
• 14:46
  And I know we've had a lot of internal conversations around, like, now with this AI
• 14:50
  talent war.
• 14:50
  I think a lot of interesting investments that maybe aren't as wonderful as they would have
• 14:55
  thought they would be are gonna get bailed out because there are people who are willing to put
• 14:59
  money to buy the talent themselves.
• 15:01
  So, like, how do you detangle all of this?
• 15:03
  A long time ago, someone told me not every good company is a good investment.
• 15:07
  And so, I think about that a lot.
• 15:09
  I think the other thing that's it depends on where you land.
• 15:11
  You know, we talked before about the Venkat piece, which is like, hey, if you really
• 15:14
  believe we're going to a world where exit scale for the winners is an order of magnitude or two
• 15:21
  larger than what we previously believed, you can pay an order of magnitude or two, maybe not
• 15:26
  three, as we're seeing in some cases, on the entry price provided that you get into winners.
• 15:31
  I talked to one LP who was like, look, what matters is the scale of the winners.
• 15:34
  If you lose your money on a $50,000,000 entry price or on a $5,000,000 entry price, it
• 15:39
  doesn't matter to me because you still lost your money.
• 15:42
  Unless somehow the company sold in such a way that you would have made money at 5, but
• 15:46
  couldn't at 50.
• 15:47
  But I just think you can't use the pricing outcomes for the outliers to determine the
• 15:52
  average.
• 15:53
  And so I think what's happening now is I see companies that are getting priced in such a way
• 15:57
  where I'm like, as a seed fund, okay, that's a $100,000,000 post.
• 16:01
  So that needs to be a $10,000,000,000 company to make the underwriting work for you.
• 16:07
  The $10,000,000,000 companies certainly exist, but there's not that many of them in the
• 16:11
  private markets.
• 16:12
  And the ones that are supported by, for the most part, by real revenue and product.
• 16:16
  And a lot of these companies are being assigned very high valuations with very little evidence
• 16:20
  of what they're gonna build on the other side.
• 16:22
  And so I find it hard under our model.
• 16:24
  We're a sub $100,000,000 fund.
• 16:26
  I think entry price really matters.
• 16:28
  And, you know, there's 10 or 15% of the time when we're gonna stretch and do something at
• 16:32
  north of 20 and south of 50, but I wouldn't want to build our entire fund with those entry
• 16:36
  price.
• 16:37
  And at the same time, yeah, have friends who that's all they do.
• 16:39
  They're like, I just want things at 30 to 50, and I wanna buy 10%.
• 16:42
  And I think these are truly exceptional special companies that are gonna be worth billions or
• 16:47
  tens of billions of dollars, and I just think it's a different that's a very different way to
• 16:50
  invest.
• 16:51
  Well, our last topic is a piece published by Emergence Capital, co written by Jake Zaper,
• 16:56
  Josh Bloom, and Madhavan Ramanujam discussing the art of pricing software.
• 17:02
  The piece delves into the most frequently asked question today, how should I price my AI
• 17:07
  product?
• 17:07
  We've talked about the many different models on the podcast.
• 17:10
  See, usage, outcome based, hybrid.
• 17:13
  And throughout the piece, the authors do a really great job of outlining what has changed
• 17:17
  about pricing in this evolving AI landscape.
• 17:20
  The piece highlights three fundamental shifts that are affecting software pricing as it
• 17:24
  pertains to AI.
• 17:25
  One, AI enables true outcomes based pricing.
• 17:29
  Two, AI taps labor budgets.
• 17:31
  And three, LLM usage adds a completely new cost dynamic.
• 17:35
  There are great tips for founders on how to begin exploring how much to charge for your AI
• 17:39
  product along with great summaries on the current and future state of AI pricing.
• 17:43
  Ultimately, the piece concludes with a quote, the companies that define the AI era will be
• 17:47
  those that align their pricing with the value they create.
• 17:51
  We've had a few different conversations about AI pricing on the podcast.
• 17:55
  So I wanted to get your thoughts here first.
• 17:57
  And also, what are some palpable differences in talking points here that hadn't existed maybe
• 18:02
  in 2024 about the same topic?
• 18:04
  I really like this piece because I thought it was something I could hand a founder and say,
• 18:08
  here's a framework.
• 18:09
  You should figure out what kind of business you're building, and this will give you some
• 18:12
  tips as to maybe what's possible for you.
• 18:14
  I think the biggest difference between 2024 and now is we actually have live contact, the old
• 18:20
  Mike Tyson analogy about everybody having a plan to get punched in the mouth.
• 18:23
  Everyone's like, oh, customers are gonna want usage based pricing or customers are gonna want
• 18:27
  this or sell the service, not the software.
• 18:29
  These were largely theoretical arguments in 2024.
• 18:33
  And I think now the answer to me seems to be it depends.
• 18:36
  As in it depends on the service you're providing, it depends on what your customer
• 18:39
  wants to buy.
• 18:40
  It also depends on is this an experimental budget, or is this a production real budget?
• 18:45
  And my sense is we don't know how this is all gonna play out because this is all happening in
• 18:49
  a world where customers have historically had some aversion to usage based pricing because
• 18:55
  it's hard to budget.
• 18:56
  And also the more of the product you use, more the you pay.
• 18:58
  There's some things like payments where it's just it's embedded.
• 19:01
  And I think we also have a legacy of per seat pricing for SaaS and a bunch of vendors who are
• 19:06
  sort of very familiar with that kind of pricing.
• 19:08
  And then I think as the merchants folks mentioned, the LLM usage is this like drag
• 19:12
  Yeah.
• 19:13
  Which is a different element.
• 19:14
  Cloud, the marginal cost was was pretty low.
• 19:16
  And with LLMs today at least, the bill can get quite large.
• 19:19
  You know, if you're really banging on Cursor, the bill can get big.
• 19:22
  My hunch is that this is gonna continue to evolve.
• 19:25
  I think some of these things, tapping labor budgets, sound great, but sometimes the person
• 19:29
  who has the labor budget and the person who have the software budget are not the same
• 19:33
  person.
• 19:33
  Yeah.
• 19:34
  And so how do you even deal with the internal silos at companies?
• 19:37
  And the outcomes thing, to me, is very interesting, but what's an outcome worth
• 19:40
  depends seems to me to depend a lot on the company and their customers.
• 19:44
  So to me, I read this as this is a very good framework for figuring out a starting point if
• 19:48
  you're a software provider, but we're all gonna have to learn together over the next couple of
• 19:52
  and I I wouldn't be surprised if there is no dominant model.
• 19:55
  But if in the end, we end up with for different products, there's a slightly different way that
• 19:58
  people pay for it.
• 19:59
  But within product categories, there's some standardization.
• 20:02
  Yeah.
• 20:02
  It's really clear right now when they shared a really great graphic about where AI product
• 20:06
  pricing was twelve months ago and where it is today.
• 20:08
  Clearly, we're still mixed.
• 20:10
  Think twelve months ago, it looked like 29%.
• 20:12
  We're leveraging a flat fee subscription pricing Yeah.
• 20:14
  And 27% were doing hybrid.
• 20:16
  Fast forward to today, 6% are continuing with that flat fee model, and 41% are leveraging a
• 20:23
  hybrid pricing model.
• 20:24
  So to your point, we still don't know, but we know it's a mix.
• 20:26
  Or we're at least that's what we're testing out.
• 20:29
  And I'm guessing that a bunch of those people who gave people a flat fee realized they were
• 20:33
  paying more for compute than they were getting in revenue.
• 20:36
  We can't let people just have either unlimited or we've set the tiers wrong, this was actually
• 20:41
  costing us way too much to run this service, and we kinda can't allow that to happen.
• 20:45
  Last question for you.
• 20:47
  They walk through using the acceptable, expensive, and prohibitively expensive
• 20:51
  framework to determine where willingness to pay lands for AI products.
• 20:55
  One of our portcos, Superhuman, leveraged this technique to price the product, which obviously
• 21:00
  has successful.
• 21:01
  They just had a recent exit over the weekend.
• 21:02
  How does this technique take form when perhaps customers don't really have a gauge as to what
• 21:08
  they're actually buying?
• 21:09
  I know we harp on this a lot, but I'm finding that customers on the enterprise side are
• 21:13
  oftentimes disappointed with the ROI for some of AI product purchases, especially over the
• 21:18
  past year.
• 21:18
  So how do we continuously evolve in educating them and pricing correctly?
• 21:22
  I seem to find most AI products I encounter today, this is a broad generalization, are
• 21:27
  either dramatically underpriced or way overpriced.
• 21:30
  There's a couple things I use.
• 21:31
  I use a transcription product called Whisperer.
• 21:34
  I'm not an investor.
• 21:35
  Whisperer feels like maybe about right.
• 21:37
  I just think the intuition here is good because I think most startup founders, if I were to
• 21:41
  generalize, underprice their product because they don't want price to be a reason that early
• 21:46
  customers say no.
• 21:48
  And they end up making the product too cheap.
• 21:50
  And if you just say instead, we're gonna anchor our pricing on something that feels like it
• 21:55
  will cause the person to pause and think about it, but where they will still ultimately say
• 21:59
  yes, that's a better instinct.
• 22:01
  Yeah.
• 22:01
  Like not being able to test the willingness to pay.
• 22:04
  And I have a list of them in my head and I'm not gonna name them on the podcast.
• 22:06
  But like, I'm using them all for literally $0, if not less $9 a month, and it has not changed
• 22:14
  since I started using it nine months ago.
• 22:17
  And also, think the problem is if you don't change the price in a specific period of time,
• 22:23
  there are other tools that have jumped into the space also.
• 22:25
  So instead of me deciding to increase what I pay for the product, maybe I will just go for
• 22:31
  something else.
• 22:31
  I think it's interesting that ChatGPT is $20, but so is Claude.
• 22:35
  ChatGPT Pro is 200.
• 22:37
  You know, sometimes the person who goes first sort of sets the reference price.
• 22:41
  By the way, the pricing work that the forty nine Palms folks have done is really good for
• 22:45
  people who are looking for tips.
• 22:46
  I I think those guys are excellent.
• 22:47
  But ChatGPT has told me that general purpose access to an LLM for a base paid level should
• 22:53
  be around $20.
• 22:54
  Yeah.
• 22:54
  Why why $20?
• 22:55
  Because they made it $20.
• 22:56
  I don't know.
• 22:57
  Because they made it $20.
• 22:57
  If they made it $10, that'd be my reference price.
• 22:59
  And now someone wanted me to pay $50 for their LLM.
• 23:02
  Be like, mean, Chetch, EBT, and Anthropic are both $20 a month.
• 23:05
  Like, why are you two and a half times as expensive?
• 23:07
  That doesn't make any sense.
• 23:09
  It's all gonna be handholding customers also on the enterprise side of educating them what's
• 23:12
  available that other folks don't offer, and that's what kind of warrants the price
• 23:16
  increase, but I don't know how long that's gonna take.
• 23:18
  Well, we are all out of time today.
• 23:19
  Thank you, Charles, for joining in.
• 23:21
  Thank you to our listeners for jumping in.
• 23:23
  Please like and subscribe, and we will talk with you all next week.
• 23:27
  Thank you.
• 23:27
  Bye.
• 23:28
  Bye.
• 23:28
  Bye, everyone.