Latest / The Learning Corner by Precursor / Episode #29: Agentic Hunger Games, What's an Effective Board Meeting?, The Future of Angel Investing

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Episode #29: Agentic Hunger Games, What's an Effective Board Meeting?, The Future of Angel Investing · The Learning Corner by Precursor

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  Any topic or issue you present to the board, you should have a point of view on it.
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  Why are we pretending that you're just some neutral arbiter?
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  Please tell me what your point of view is so we can talk about that instead of talking in the
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  abstract about whether this is an interesting issue.
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  It's the week of April 21.
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  Welcome to The Learning Corner, a Precursor Ventures podcast.
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  Welcome to The Learning Corner by Precursor.
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  I'm Mia Farnam, and I'm joined by our GP and managing partner, Charles Hudson, where we will
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  be talking through the articles and Goodreads that caught our team's attention over the past
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  week.
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  Our first topic came from Ed Sim in a recent LinkedIn post titled Enterprise Agent Hunger
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  Games, which explores the battle to bring AI agents into the enterprise setting.
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  He cautions founders against raising VC unless they're building for massive scale and
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  highlights the difficulty of deploying AI in complex enterprise environments where factors
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  like security, compliance, and integration are really nonnegotiable.
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  Ed sees opportunity in companies that build agentic workflows, building cross platform
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  intelligence, but warns that the landscape will consolidate quickly with very few winners and
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  many downfalls.
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  So Ed's article paints a really tough picture for agentic companies going after enterprise
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  customers.
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  And one thing that came to mind when I was reading the article is just how competitive the
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  market is.
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  So Yeah.
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  You're not only competing against other agentic startups, which there are hundreds of them.
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  You're competing against larger incumbents that enterprises have already paid tens of millions
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  of dollars over many years to deploy and use.
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  So do you think, Charles, that founders understand how steep that distribution and
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  integration hill actually is when they first go out and raise funding for agenda tools.
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  You know, every time Ed writes something about enterprise, I always read it because that's his
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  world.
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  I think on the enterprise side, I don't see quite as many first time founders heading in
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  that direction.
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  I think there's sort of a recognition that competitive dynamics are different and that,
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  you know, the minimum viable security level authentication level, just the MVPs for those
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  products are oftentimes much bigger.
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  And the capital required to raise them to build those products is usually much greater.
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  So I think what Ed said is totally true.
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  It's like all enterprise software, but with the added twist of this new thing called agents
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  that are not fully well understood.
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  But I also feel like venture capital dollars tend to follow themes.
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  And if you just say, well, enterprise and cybersecurity have been a good theme, and AI is
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  a new theme.
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  What if we take what's traditionally a good theme and marry it with this new theme?
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  There ought to be space for new companies.
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  And sometimes the answer is it's a good market, but just not a good market for startups.
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  I'm very curious.
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  Like, I am quite confident in the next five years, many organizations will use agents to do
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  many things.
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  Maybe today, it's simple tasks.
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  Over time, it will become more complex tasks.
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  The advent of a new technology, a new paradigm does not mean that startup companies will be
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  the winners.
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  So I'm very curious to see whether there's, you know, two competing forces here.
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  One is the novelty of the approaches that companies can build when they're not tied to
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  legacy infrastructure.
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  And then there's this sort of account control positional advantage that the incumbents have
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  by already being in the building and maybe not being on the cutting edge of technology, but
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  already having the relationship trust and and integrations.
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  It reminded me also of Tom Hudsongoods had a good post, I think it was this week or last
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  week, about basically integrations as a competitive lever, and being able to integrate
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  with and talk to lots of other systems that your customers use is once again gonna become a
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  competitive competitive differentiator.
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  It seems like the folks who are gonna be the most competitive in this space will have to
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  have extreme knowledge that's really deep on what the existing legacy tools that their
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  customers currently already use and not fall into the demise of being like a point solution
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  and be able to kind of create that data.
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  I'm putting quotation marks around my fingers for moat because it's pretty easy to just try
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  and compete against the tens of fifteens of different companies that are hitting up each
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  one of these folks internally at enterprise.
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  I would suspect that also most of the venture dollars for enterprise agents will flow to
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  people who already understand selling to the enterprise.
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  Because if you think adding in the burden of selling a new technology is hard, but selling a
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  new technology with a selling motion you don't understand, but where
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  the buyer has a preferred way of buying, that's pretty tough.
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  Yeah.
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  And Ed said it really well.
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  He said that oftentimes right now, you're gonna be betting on the jockey.
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  And so the jockey in this scenario would be the founder who knows exactly who to talk to in
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  specific enterprise scenarios.
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  Ed also said pretty explicitly, don't raise VC unless you're building for scale.
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  Do you think we as investors are doing enough to communicate what that actually means,
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  especially to founders who are entering the AI market for the first time?
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  I think there's a difference between what is said and what is heard sometimes.
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  I think most VCs are like, I tell people I want to invest in big companies.
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  And founders are like, yes.
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  I hear you.
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  But oftentimes, founder version of what a big company looks like and VC version of what a big
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  company looks like are one and sometimes two orders of magnitude different.
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  So I just find it's more helpful to tell people, listen.
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  We're trying to find companies that can get to a hundred million dollars in revenue minimum
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  with good margins.
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  And getting to a hundred isn't the end game, but that's sort of the first waypoint.
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  If you're interested in building one of those but if you're pitching a really big fund, the
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  answer might be like, hey.
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  We're looking for a company that can comfortably get to 250,000,000 in ARR, but with
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  a path towards 500 to a billion so that it can go public.
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  I think there aren't that many founders I meet where when I tell them that's what big looks
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  like, don't go, oh, that's, like, bigger than I was expecting.
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  It'll be really interesting to see who continues to emerge as the ones who are able to
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  sustain the next couple of years with their same contracts.
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  We talk about this all the time on the podcast, but so much money is being put into the
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  exploration of tools because the hierarchy of corporate enterprises is someone says, put
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  money into AI.
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  I think the first thing they probably look at is who of my current existing solutions offer
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  something that I can just take off the shelf and what they're building.
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  I'd rather experiment with that.
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  And then the next hope that you should have as an agentic company is that you are the best
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  next possible solution.
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  And then after you even solidify a quote unquote pilot, you then have to deliver ROI
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  moat to continue to be able to sustain that relationship year over year.
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  And that, I don't know how that's gonna look in the next couple of years.
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  I mean, I I had a fascinating conversation with a friend of mine who it really put a fine point
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  in what you just said.
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  Mean, he sells sales enablement technology that's enabled by AI.
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  And he's like, we just won this deal from our biggest competitor.
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  We undercut them on price, and we stole the deal from them.
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  And I was like, but your plan is to then raise price on the customer next year.
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  Right?
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  He's like, yeah.
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  That's the only way the deal makes sense.
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  I was like, but what if somebody comes and does the same thing to you and cuts the price by a
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  third?
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  And they're gonna have the same logic that you will.
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  He's like, oh, that's already happening.
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  And so I just think the other dynamic is there's so much venture money chasing these
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  ideas.
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  In some cases, there are more startups with money than there are customers with problems.
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  And so as, you know, the old economics phrase of ruinous price competition, I'm already
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  seeing that in some categories where newly funded companies who are desperate to win
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  business are going out and undercutting people.
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  And for the first time, one of our portfolio companies this week told me they walked away
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  from a deal because their competitor priced it in such a way that they're like, there's no way
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  anybody could make money on that deal, and we'd rather go find things where our technology
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  works and where we can make money than sign up for that.
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  Well, our next topic is another LinkedIn post, but this time from Jeffrey Silverman, partner
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  at Laconia, titled Reframing the Board Meeting, It's Not a Performance Review.
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  Silverman offers a really useful mental shift for founders.
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  He suggests reframing board meetings as a strategic work session where you can lean on
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  investors for help.
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  When board meetings are structured and around shared problem solving instead of polished
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  updates, founders can get more value and transparency and boards become true partners in
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  navigating inflection points.
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  In an ideal world, yes, I'd love for all board meetings to follow that structure, but I also
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  know that there are factors outside of a founder's control.
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  So is the board paying attention on the call?
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  Did they read the materials in advance that you worked so hard to prepare?
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  Are they engaged at all?
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  That said, focusing on what is within the founder's control, what are some examples
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  you've seen of founders running truly productive and effective board meetings?
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  Yeah.
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  I mean, I think I read the article, I was like, there are parts about this that really
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  resonated with me.
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  I think the the hard piece is you are, as a board member, always evaluating the founder and
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  CEO during a board meeting, but maybe not in the way that founders think.
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  The number one thing for me is I was like, does the agenda and the time allocation reflect what
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  I think are the most important issues facing the company today?
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  And so the best board meetings I've gone to, if you think about two circles, one circle is what
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  are all of the issues that the investors see as the biggest issues facing the company?
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  If you think of another circle, what are the issues the CEO wants to talk about and wants to
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  spend time on in the board meeting?
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  When you have perfect overlap of those two circles, I think everybody walks away feeling
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  good about the board meeting.
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  The investors are like, we spend all of our time on the most important thing, and the CEO
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  put together an agenda that gave us enough time to talk about those things.
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  This was a productive, effective board meeting.
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  The worst ones are where the company needs to talk about a new round of financing, and the
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  CEO wants to give you a product demo and talk about customer service ticket response time.
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  And you're like, there's a big issue here we need to talk about.
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  And so usually what I'm judging CEOs on, other than their command of the business, which I
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  think it's frankly fair and your job as a board member to evaluate the CEO based on his or her
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  command of the business.
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  The other one is, are they focusing our collective time on the most important big
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  ticket issues?
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  And oftentimes, I find with first time founders, sometimes there's an avoidance of a
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  difficult issue because there's a fear of not wanting to open that can of worms or not
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  wanting to frankly talk about shortcomings.
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  And, you know, the number of times people have been like, well, we had a great quarter.
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  We plan.
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  These two people quit, but we got best place to work in San Francisco award.
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  I'm like, okay.
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  The things you just highlighted to me are not consistent with a great quarter.
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  A great quarter doesn't look like that.
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  And so sometimes it is painful.
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  I I've been in board meetings.
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  I'm like, this CEO is delusional.
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  Like, he or she doesn't understand the gravity of the situation that they're in, and, like, we
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  might need to make a change.
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  And in most cases, changing CEOs is so painful, having done it.
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  The few times I've been involved with it has made me wanna do it less and less each
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  successive time.
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  But the times I've done it, was like, wow, this person has gotten themselves into a problem
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  that they don't know how to get out of.
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  And that's the time we just abort and be like, this person doesn't have the answers.
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  I feel like a precursor because we come in so early and our checks become smaller and smaller
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  over the growth stage of a startup.
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  We spend a lot of our time actually more so being the true sounding boards to our founders
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  and more so prepping them for those board conversations and also probably being included
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  in conversations with the board with the founder not there.
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  What learnings have you taken away from that specific role and how hard that can be or
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  impactful also?
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  You know, we're betting on people's upside.
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  So we're investing in them oftentimes before they've even had their first board meeting.
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  And I always go into these things with, like, maximum optimism with the expectation that this
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  person is going to be the person who rings the virtual bell on the stock exchange and pushes
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  the button and the confetti comes down.
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  And then sometimes you realize, wow.
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  This person got us all the way to series d or got us all the way to series a.
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  And this might be as far as they're gonna get us because the skills required to get to the
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  next level are beyond this person.
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  And that's always hard to accept.
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  But the longer I do this, the more I've just started to accept.
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  Two things can be true.
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  One is you can go into these conversations and relationships believing that the person can go
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  all the way.
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  And two, you can also learn things along the way that will reveal to you that that person
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  has a ceiling.
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  I think I've gotten better at talking to people about, hey.
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  We might be approaching and the good news is you can extend your tenure as CEO oftentimes by
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  hiring really great people to work for you.
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  And the better you do at recruiting and building an exec team, the longer you will
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  remain as CEO, as a founder.
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  Additionally, within our own team, this week, we also talked about Rob Go's recent trough of
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  disillusionment piece, where he highlights the importance of not projecting your own stress
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  onto founders through tough moments.
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  And for anyone who's listening, definitely read that piece.
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  It was a great read.
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  I know you emphasize being gracious as an investor when things are getting hard.
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  I guess, how have you seen that done well?
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  And then where have you seen it maybe go wrong also?
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  I think most founders are operating under stress at all times.
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  I think in general, when things aren't going well, they know it.
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  And when they've made a mistake, they know it.
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  So I always try to think, you know, if somebody's really down or comes to you with bad
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  news, they probably know it's bad news.
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  There's sort of no need to yell at them, berate them, or belittle them.
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  They they know they've made a mistake.
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  I haven't found that, like, yelling at people who are already on the back foot makes them
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  particularly receptive to whatever message you're trying to communicate.
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  And sometimes if people are flying really high, it's okay to let them fly high, but it's good
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  to remind them that, like, hey.
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  You should enjoy this you don't wanna suck the joy.
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  Like, you should enjoy this moment.
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  The company is doing well.
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  Now the conversation is how do we maintain this momentum?
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  So I'm be like, I wanna be a dampener.
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  When the founder's too high, I wanna push them down when they're too low.
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  I'm like, well, sometimes it's okay to be enthusiastic and happy that the business is
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  doing well.
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  And I think you have to always approach these conversations with, like, if I wanna be well
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  understood and I wanna be an effective communicator, what does this person need from
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  me?
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  And sometimes they just need the acknowledgement.
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  Wow.
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  That was a rough quarter.
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  Your CTO quit, and, like, one of your big customers went out of business.
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  All things considered, I think you did a decent job of navigating through what was otherwise
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  super challenging, which is different than saying great job.
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  I found a lot of my conversations with founders when it's in prep for a board meeting is really
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  educating them on, like, how to this out to board members that maybe I know exactly what
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  they're thinking on the other side and maybe not as transparently as the founder even knows.
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  Again, I try to balance being gracious of these are all the awesome things you've done.
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  These are the things that are coming that I know that are on their brain.
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  Let's walk through that transparently and and what you could possibly say.
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  Here's the worst case scenario.
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  Here's the best case scenario.
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  Very rarely do I think the best case scenario is going to unfold on the board meeting.
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  But prepping, I think, for questions that could surprise founders in the moment and maybe put
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  them on the spot in a light that I don't think is the best for them.
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  It's just that they're caught on the heels a little bit.
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  I think that's that's more of what I try to prepare for.
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  I also just tell people, any topic or issue you present to the board, you should have a point
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  of view on it.
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  There's a difference between a discussion and an exploration.
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  To me, a discussion is, hey.
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  I'm thinking about hiring a VP of sales, and I'm leaning towards doing it.
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  I can have that conversation, which is different from do you think I should hire a VP
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  of sales?
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  Do not wanna have that conversation at the board.
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  And I do think, in many cases, framing is the difference between a successful conversation
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  and an unsuccessful conversation at a board meeting.
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  Oftentimes, I'll tell people, like, well, you brought this issue up.
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  Presumably, you have a point of view.
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  Why are we pretending that you're just some neutral arbiter?
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  Like, you're running the company.
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  We're talking about this issue because you have a point of view.
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  Please tell me what your point of view is so we can talk about that instead of talking in the
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  abstract about whether this is an interesting issue.
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  Would you say a productive practice, because I know a lot of founders like to do this, is
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  individually with board members, bring them up to speed on what they're gonna talk ahead of
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  time.
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  And then at the board meeting, almost represent it knowing what everyone's thinking.
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  I've seen it go well, and then I've seen it go not so well.
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  I think sometimes it feels a little silly because you're just like, well, I've talked to
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  all of you about this.
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  I know that you all.
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  So I think if it's a big thing, it's really good to read the room before you present it and
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  just know, am I gonna get resistance on this issue?
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  Or where are people's heads on this issue?
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  Because sometimes you can get clues.
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  You're like, oh, well, here are the three things I'd really wanna know.
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  If we're gonna make a decision about this candidate, here are my three questions, and I'd
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  love if you could bring more information about this issue to the meeting.
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  Sometimes you do get things that are additive, and sometimes just dry running it, you realize
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  like, oh, I don't need to spend forty five minutes on this.
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  Everybody kinda thinks this is a good idea.
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  So I now have, like, thirty minutes back in this meeting to do something else with.
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  Yeah.
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  But I do think it's an investment on the part of the CEO.
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  I know a lot of board members like to know what's coming.
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  Some people are like, I want the deck a week in advance.
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  I'm like, well, that's really hard for most startups to do.
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  And if they're gonna give it to a week in advance, you really better read it.
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  You or your AI assistant really better read it.
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  For our last topic in a really candid and introspective post, Holly Teko shares why she
• 15:49
  chose to step away from angel investing after backing more than 54 companies across fifteen
• 15:54
  years.
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  Despite really strong deal flow and a deep network, she reflects on how the economics
• 15:59
  rarely work for angels, how follow on funding was increasingly inaccessible, and how the
• 16:04
  constant pace of investing began to feel like chasing status rather than generating returns.
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  And her reflection challenges the incentives around angel investing and suggest that there
• 16:12
  are alternative ways to build deeper founder relationships and stay on the forefront of
• 16:17
  innovation and trends.
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  I'll speak from my personal experience.
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  I'm a huge fan of Palitechko, just being so close to the health care market.
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  So hearing this perspective in all of her candor was really interesting.
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  And actually, a few weeks ago for all of our listeners, we talked about Bradley Tusk and the
• 16:31
  realizations of economics perhaps not being as advantageous to be in traditional venture from
• 16:37
  the institutional level.
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  Now we get to hear it from an angel's POV.
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  So some of Precursor's largest co investors have been strategic angels.
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  What makes them great co investors, and what could happen to early stage land if we see more
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  great folks hit the pause button on investing in that ecosystem?
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  I think it was The Wall Street Journal about a year ago wrote an article, which is like angel
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  investing is dead.
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  I've thought a lot about this because we spend so much time talking about what's happening in
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  capital v, capital c, venture capital.
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  I think the loss of angels is probably a much bigger net negative for and I read Hallie's
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  post, and I really like her writing and her podcasting and her investing acumen, and I
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  think digital health will be worse off without her.
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  But I think for a long time, if think of what made angel investing work, you got in at
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  relatively low prices, actually substantially lower prices than the VCs.
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  It was less institutional, so it was more betting on people.
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  And really, there weren't institutional pools of capital doing pre seed or angel style
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  investing, so angels were this really critical way for somebody to go from zero to one and
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  build a product.
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  And part of the reason the math worked is, a, like, you were getting in at these impossibly
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  low valuations.
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  B, companies actually went public and got acquired.
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  And then founders wanted those angels on the cap table.
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  And if I look at the economics, entry prices have gone way up.
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  There's more institutional capital like ours that will do some of that zero to one
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  investing.
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  The hold times for angels have gotten much longer.
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  And as Hallie pointed out, one of the challenges is as startup financings and
• 18:03
  fundraisers have gotten more complex as an angel, oftentimes, don't have pro rata rights.
• 18:07
  So either you get massively diluted by future financings or the company does some kind of
• 18:12
  restructuring recap or pay to play, and you get washed out.
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  Or in general, and I don't mean this as a generalization, but I will say it as a
• 18:19
  generalization, I think previously there was much more attention and care paid to the needs
• 18:25
  of angel investors by founders.
• 18:27
  They treated those people like early employees, and they looked out for them when they were
• 18:31
  acquihires or acquisitions or things that were happening.
• 18:34
  And I think we live in a world where I think capital feels more transactional in general.
• 18:39
  To founders, including angels, I've seen angels you know, they were in the deal the longest and
• 18:42
  got treated the worst because maybe they bought common.
• 18:44
  And they were lumped in with the common shareholders and, like, they got the short end
• 18:48
  of the stick.
• 18:49
  And I can understand why angel investing today as a financial activity is probably less
• 18:55
  attractive.
• 18:56
  And also just given the volume of startups out there, it used to also be even in 2020, we had
• 19:01
  all these operator angels who were just like, I'm just slinging checks on the side of my day
• 19:04
  job.
• 19:04
  And at some point, I always tell them, be careful.
• 19:06
  Once you make enough investments, people are gonna know that you're an angel investor, and
• 19:09
  your deal flow is gonna go up 10 x.
• 19:11
  Yeah.
• 19:11
  So I
• 19:12
  don't know.
• 19:12
  I read that post, and I was like, this is a good reason to get out of the angel investment
• 19:16
  business if this has been your experience.
• 19:17
  I just hope we don't lose all of our great operator angels.
• 19:19
  And to your last point about your deal flow increasing by 10 x, that then means you don't
• 19:24
  get this really curated set of small deals you can spend more time to look at, and you know
• 19:28
  somebody who works there, and they come recommended by someone you trust.
• 19:32
  You run completely by yourself, and a % of the risk is done by you.
• 19:35
  And it's difficult to give it the time and effort that you've done for your best checks
• 19:39
  that you probably wrote earlier on.
• 19:40
  It's like running a venture fund with no management fees.
• 19:42
  It's a pretty tough but I will say the irony is the thing that has endured that I wasn't sure
• 19:47
  would endure is I meet so many of these fundless SPV people who are able to cobble
• 19:53
  together 5 to $10,000,000 through hustle and through relationships to put into series b and
• 19:59
  c stage companies.
• 20:00
  And, like, that has proven to be a much more enduring part of the capital stack.
• 20:03
  So that's, I think, the interesting thing about our business is the capital stack shifts every
• 20:07
  ten years.
• 20:08
  We got seed and that kind of unsettled things, then we got pre seed and unsettled things.
• 20:12
  And I think we're going through another unsettling right now as these big venture funds
• 20:16
  get get larger.
• 20:17
  And I really hope we can find a way to make angel investing lucrative and interesting to
• 20:21
  good people.
• 20:21
  Well, are all out of time today.
• 20:22
  Thank you, Charles, for stopping by, and thank you for our listeners for popping in as well.
• 20:27
  Please like and subscribe, and we will talk with you all next week.
• 20:29
  Thank you.
• 20:30
  Bye.