Latest / The Learning Corner by Precursor / Episode #7: Ubiquity Ventures, WSJ, Equal Ventures

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Episode #7: Ubiquity Ventures, WSJ, Equal Ventures · The Learning Corner by Precursor

• 0:00
  If my hypothesis about where Seed is going is right, there's some things we have to do
• 0:04
  differently, but the core job doesn't change.
• 0:06
  It's still about finding great founders, helping them figure out the core questions of
• 0:09
  their business, and setting them up for success.
• 0:11
  It's just that that setting up for success might not mean trying to get a tier 1 VC fund
• 0:16
  to do the series a.
• 0:17
  The skill sets we might need in advising companies could be really different.
• 0:20
  It's the week of November 4th.
• 0:22
  Welcome to the Learning Corner, a Precursor Ventures podcast.
• 0:30
  Welcome to the Learning Corner by Precursor.
• 0:32
  I'm Mia Farnham, and I'm joined by our GP and managing partner, Charles Hudson, where we will
• 0:38
  be talking through the articles and Goodreads that caught our teens' attention over the past
• 0:42
  week.
• 0:43
  Topic number 1, 3 things you'll never hear from a solo GP.
• 0:48
  It's an interesting take on the unique challenges and realities faced by solo GPs
• 0:54
  written by the Ubiquiti Ventures team, shedding light onto the unique ways that solo GPs manage
• 1:00
  their funds that differ from funds with multiple partners and a more structured IC.
• 1:04
  Specifically, the piece talks about the difference in how solo GPs are able to address
• 1:09
  deals compared to non solo GP led funds when it comes to things like bandwidth limitations,
• 1:14
  inter politics to push deals to the finish, and more.
• 1:17
  Charles, what are your thoughts on the idea that solo GPs are often perceived as having the
• 1:23
  same capabilities as larger firms but with fewer resources.
• 1:27
  While I agree with a portion of that, I do feel like it greatly oversimplifies the difference
• 1:31
  in structure.
• 1:32
  Yeah.
• 1:32
  I mean, obviously, I have an opinion on this as a solo GP.
• 1:36
  It's funny.
• 1:36
  Me, like, when I first started the fund, one of our LPs said, like, well, what what advantages
• 1:41
  do you have?
• 1:41
  I was like, well, speed is a big one.
• 1:43
  And he said, what?
• 1:43
  I said, well, I don't have an IC.
• 1:45
  If I like a company and I meet them in the morning and I can make some calls in the
• 1:49
  afternoon, I could give them a decision by the end of the day.
• 1:51
  That's very hard to do in a partnership context.
• 1:54
  And I do think partnerships can allow you to say and do things that I think are, like, not
• 1:59
  intellectually honest.
• 2:00
  And I do think the whole, like, I couldn't get it through my partners is I've always found
• 2:05
  that to be a really unsatisfying thing to tell a founder because it either means, like, you
• 2:10
  didn't do a good job presenting the deal, you don't have the authority or power in your
• 2:14
  partnership to, like, convince people to do it, or you're weak.
• 2:17
  None of those is, like, a good thing.
• 2:19
  It's the same message, but I think it lends a bit.
• 2:20
  I think it's better to just say, I really wanna get this done.
• 2:22
  I push hard, and there was just, like, too much resistance.
• 2:25
  I think this whole couldn't get it past my partners.
• 2:26
  To me, that always just feels like you didn't try that hard.
• 2:29
  I've oftentimes found that to be a cop out, which is but I've talked to people about that
• 2:33
  ex post.
• 2:34
  They're usually like, yeah.
• 2:35
  I floated it, and people seem not that into it, and I wasn't gonna pound the table for it
• 2:39
  because I didn't want it that badly.
• 2:40
  I also do feel like knowing that you have the authority to make a decision on something
• 2:46
  changes the dynamic of a first and a second meeting versus like, oh, I'm really excited
• 2:50
  about this.
• 2:50
  Now I have to figure out how do I translate my enthusiasm.
• 2:53
  And a lot of the fundraising advice we give our portfolio companies is your job is to, like,
• 2:57
  infect the person you meet in the first meeting with the level of enthusiasm that will allow
• 3:01
  them to go back to their team and advocate on your behalf because most of that work is gonna
• 3:06
  happen without you in the room.
• 3:07
  So I think the decision making thing is a big deal, and you can't be weaselly and be like my
• 3:11
  partner.
• 3:12
  Like, you don't have partners.
• 3:13
  And I've actually enjoyed the fact that I kinda have to tell people the truth with the
• 3:16
  exception of the issue being something about the founder or the person that's unlikely to
• 3:20
  change.
• 3:21
  Other than that, I'm like, we should tell people as much truth as they can handle.
• 3:24
  If I think it's the market, think it's the market.
• 3:26
  If I think it's the product, you should just tell them, this is what I got stuck.
• 3:29
  Doesn't mean I'm right, but this is what, like, kept me from getting to yes.
• 3:32
  The article also touches on the idea that solo GPs must be more selective due to limited
• 3:38
  bandwidth.
• 3:38
  And so as someone who operates in way more of a team oriented environment and precursor, how do
• 3:43
  you manage the balance between being selective and see a wide range of opportunities?
• 3:49
  I think it was Nikhil Trivedi from Footwork who wrote a post about the various forms of venture
• 3:55
  firms.
• 3:56
  And I think he was the first person I met who sort of differentiated between a solo
• 3:59
  capitalist and a solo GP.
• 4:01
  And I think of, like, a solo capitalist being somebody where it's, like, just one person,
• 4:03
  their phone and their laptop.
• 4:04
  No staff, no associates, no principals.
• 4:06
  Like, Goran Zev or I think about Ashmit Sendana or Manu Kumar, I think of as, like, solo
• 4:16
  capitalists, people who are just, like, a single decision maker operating with little to
• 4:21
  no human capital infrastructure around them, which is different than being a solo GP.
• 4:25
  You know, we have 13 people.
• 4:27
  We have, like, a real firm.
• 4:29
  I do think the fact that we have great people at Precursor and the fact that I like doing
• 4:33
  more deals means I don't have to focus on being concentrated from a deal standpoint.
• 4:37
  I do have a finite amount of time I can spend with portfolio companies because I've gotta do
• 4:41
  fundraising, and I gotta run the place.
• 4:43
  Many of the solo GPs I know run more concentrated fund strategies, and it's
• 4:47
  partially because their belief is they'll do their best work spending more time with fewer
• 4:53
  companies.
• 4:53
  I think I do my best work spending slightly less time with more companies.
• 4:57
  A lot of my friends are like, oh, you have the personality for somebody who could do this.
• 5:00
  You context switch really quickly.
• 5:02
  Like, you can kinda think on your feet.
• 5:04
  You're willing to work really hard.
• 5:06
  I was like, yeah.
• 5:07
  And I love working with people like Sunil who can go deep, because I I tell a lot of people,
• 5:11
  it's a great cap table when you can have someone who has the breadth of precursor, but
• 5:15
  also having an investor who can go deep, who can talk to you 3 hours a week, every week if
• 5:20
  you need it.
• 5:20
  It's a really powerful combo, and I love co investing with concentrated people and
• 5:24
  bringing, like, our special sauce to the table, but also getting to learn from them about what
• 5:28
  it means to run a much smaller book.
• 5:30
  Well, moving on to topic 2, AI startup perplexity in talks to double valuation.
• 5:36
  It's another read that came from The Wall Street Journal, where it's reported that the AI
• 5:41
  startup Perplexity is in talks to raise $500,000,000 in new funding, which would more
• 5:46
  than double its valuation to $8,000,000,000 This rapid growth is riding on the coattails of
• 5:51
  Open AI's massive $157,000,000,000 valuation and demonstrates how the market is still very
• 5:57
  bullish on AI startups even as other sectors slow down.
• 6:00
  And we've talked about massive valuations for AI platforms a lot on this pod.
• 6:05
  I guess one thing I haven't asked you is what are you hearing from fellow GPs and MPs at
• 6:12
  other funds who are running to be included in these deals?
• 6:14
  What do they say is their rationale for underwriting these types of companies?
• 6:18
  Boy, Mia, I've heard a lot of things.
• 6:21
  I think there's some people who are doing a bit of trophy hunting, and they're like, look if
• 6:26
  this is gonna be one of those companies.
• 6:28
  Even if we're getting in slightly lower than our entry point, this is probably a name or a
• 6:32
  logo we're gonna wanna be able to say we were involved with.
• 6:35
  And to some extent, I get it.
• 6:37
  Google has proven that search is just a massive business, and Google hasn't had a real
• 6:43
  meaningful scaled competitor for, let's say, 20 years ish, maybe 25 years at this point.
• 6:49
  And I think in my conversations, a lot of people use AI powered tools in the same way
• 6:54
  they use search engines.
• 6:55
  They ask them questions, and they want the answer.
• 6:57
  But instead of getting a bunch of links, they get an answer with links to the underlying
• 7:02
  data.
• 7:02
  Now I am not an investor in perplexity.
• 7:05
  I have no idea how that business is doing, but I do think people are looking at the scale of
• 7:11
  search as a business.
• 7:13
  It's very clear that doesn't feel to me today that Google is going to be as dominant in AI
• 7:18
  search as they were in traditional web search based on my experience as a consumer.
• 7:22
  One thing I will say is I like perplexity.
• 7:25
  I've used the product quite a bit.
• 7:26
  I'm trying to figure out, like, what's the special sauce in what they're doing.
• 7:29
  Oftentimes, I find the search results when I go through the sources.
• 7:32
  I'm like, oh, these are highly ranked pages on Google, where Perplexity has done a fantastic
• 7:37
  job of summarizing and identifying the content that matters.
• 7:40
  But is that enough?
• 7:41
  But in some ways, they're going through all of the challenges that Google went through, like,
• 7:45
  hey.
• 7:45
  Don't crawl my stuff.
• 7:46
  Actually, just kidding.
• 7:47
  Crawl my stuff so that it gets found and gets indexed.
• 7:49
  And, look, OpenAI has been pretty clear that companies that are doing search like this,
• 7:54
  whether it's Glean or Perplexity, they prefer that their investors not invest in companies
• 7:59
  working on these areas.
• 8:00
  And part of me feels like, what if Cheggpt eats it all?
• 8:04
  I understand the intellectual case for Perplexity.
• 8:07
  I think it's a great product.
• 8:08
  It's backed by really great people that I think very highly of.
• 8:12
  And I'm like, gosh.
• 8:13
  Like, what if with with many of these platform shifts, like, the most dominant company or
• 8:17
  companies get more dominant with each cycle.
• 8:20
  Like, we had many more interesting companies in the, like, on premises software world and the
• 8:25
  cloud.
• 8:26
  And I think it's because cloud and these big infrastructure plays allow you to achieve just
• 8:30
  enormous economies of scale.
• 8:32
  And what if, like, chat gpt just ends up doing this too?
• 8:35
  But look.
• 8:36
  That means everybody who's not OpenAI is probably not gonna wanna rely on OpenAI, and
• 8:40
  someone's gonna want it.
• 8:41
  So I think Perplexity is a super interesting company.
• 8:43
  I think Glean is super interesting.
• 8:45
  I think the intersection of search and AI is interesting, but it also just tells me that a
• 8:49
  lot of people are willing to make a pretty big directional bet on this product.
• 8:53
  And I give perplexity props on one thing in particular.
• 8:55
  I think they've been very aggressive in distribution and finding other premium
• 8:59
  services, whether it's LinkedIn or Uber and for, you know, like, how do I get you to become
• 9:03
  a perplexity pro subscriber essentially for free and get you in the habit of using
• 9:07
  Perplexity so that when the time comes to pay for it like, I have all these questions.
• 9:11
  Like, is the ultimate business model gonna be subscription, or is it gonna be advertising
• 9:15
  like it was for Google?
• 9:16
  Like so if you said, hey.
• 9:17
  I think the intersection of search and AI is going to produce minimum one big stand alone
• 9:22
  company, Perplexity is probably a pretty good directional bet.
• 9:25
  Along those same lines, I mean, Perplexity is working on, you know, monetizing across
• 9:29
  multiple channels and kind of shared more details about that, the enterprise versions,
• 9:33
  consumer subscriptions.
• 9:35
  And then it got me thinking kind of in a funny way, does a company like Perplexity actually
• 9:40
  have to tout your future revenue streams to potential new investors?
• 9:43
  Like, how actually important is it for these companies to have well thought out plans for
• 9:48
  growth with new capital?
• 9:49
  I just assume that there are droves of venture funds who want to go place money there.
• 9:54
  For your point of logo chasing, etcetera, how does that affect the way that money is going to
• 9:58
  be placed there, and what does that say about the space itself?
• 10:02
  Earlier this fall, it might have been Elad or somebody tweeted, like, some query volume
• 10:07
  number on perplexity, but I think it might have been cumulative.
• 10:10
  I don't think it was, like, a daily.
• 10:11
  This is the one nice thing about private markets.
• 10:13
  Because the people who invested in this company are smart, I'm going to assume that they asked
• 10:18
  good questions and that whether it was query volume or subscribers.
• 10:22
  I'd be very curious with all of the sort of 1st year free subscriptions.
• 10:27
  Like, what's the future conversion?
• 10:29
  I'm sure there was a robust conversation about the future business model.
• 10:32
  I wonder if the bet was made based on data or based on a belief that this is something people
• 10:38
  will pay for and use because this is the thing I think is interesting.
• 10:41
  Just GPT already we know has a pretty meaningful direct to consumer subscription
• 10:45
  business.
• 10:46
  And the question is, like, will people pay for 2 AI subscription products or 3 if you've got
• 10:51
  it?
• 10:51
  I mean, I'm I'm a weirdo.
• 10:52
  I pay for anthropic, perplexity, and open AI, but that's, like, for research.
• 10:58
  So I don't think I don't think a normal consumer is gonna spend $60 a month on AI
• 11:03
  tools.
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  And so to me, I'm very curious.
• 11:05
  I mean, I wasn't in the room for those conversations, but I'm very curious about what
• 11:09
  those folks underwrote in terms of the business model and, like, how far into the future they
• 11:14
  were underwriting.
• 11:15
  And they're smart people, and I would like to think that they exercise good judgment.
• 11:20
  We're on to the 3rd topic.
• 11:22
  It's one I'm the most excited actually to ask you about.
• 11:24
  It's reflections of an emerging manager.
• 11:26
  It's the final topic for the episode, and it comes from the Equal Ventures newsletter.
• 11:31
  This article highlights some key lessons learned in the early years of running a fund,
• 11:36
  the challenge of raising capital as an emerging manager, the importance of founder investor
• 11:41
  relationships, and the need for patience when building a firm's track record.
• 11:45
  I know you recently attended the Emerging Manager Circle hosted by Equal Ventures in New
• 11:49
  York, so I'm really curious what resonated the most with you from this article.
• 11:53
  1st, huge thanks to the Equal team for putting together an amazing event.
• 11:58
  It was, like, part homecoming, part conference.
• 12:01
  It was it was really awesome.
• 12:03
  I think for me, you know, we're, by most LP standards, no longer an emerging manager.
• 12:08
  So I did feel a bit like an interloper.
• 12:09
  It's kind of like going to someone else's high school reunion.
• 12:11
  I thought it was an important event to talk about, oh, what's the state of emerging
• 12:15
  managers, particularly as more capital flows to the established funds.
• 12:18
  Funds.
• 12:18
  Like, what does it mean to be an emerging manager?
• 12:20
  Like, what are the outlooks?
• 12:21
  I would say 2 distinct points of view presented at the conference.
• 12:25
  1 is, like, emerging managers are great and here to stay.
• 12:29
  Changed nothing about the course.
• 12:30
  This too shall pass.
• 12:31
  I think there was another sort of, like, subtext where emerging managers aren't going
• 12:36
  away per se, but what it means to be an emerging manager, how we'll operate, what we'll
• 12:41
  do is just gonna be really different.
• 12:43
  And we're gonna operate in a really different world as emerging managers, and it's, like,
• 12:48
  worth keeping that in mind.
• 12:50
  I was very much of the mind that, like, whatever era we've been in for seed for the
• 12:54
  last 10 years is kind of over.
• 12:56
  And I say that not in a doom and gloom way.
• 12:59
  I say that in the, like, the strategies and tactics, whether it's graduation rates or
• 13:04
  trying to, like, figure out how to front run, like, what the big funds are gonna do or just,
• 13:08
  like, general lack of competition.
• 13:10
  That era is over, but these eras don't last forever.
• 13:13
  Exede is a 25 year old innovation and venture.
• 13:18
  There are very few things, Mia, we do the same way today that we did 25 years ago.
• 13:21
  And why should Seed VC be any different?
• 13:23
  And so I think it's actually quite exciting that Seed is changing.
• 13:26
  Now look, it's not as much fun if you're new to the business.
• 13:29
  And I told people on stage, I don't think the pitch that worked for precursor in 2014
• 13:33
  wouldn't work today.
• 13:34
  When I did it in 2014, I was like, what what is precede?
• 13:37
  Like, I've heard this term from Manu Kumar.
• 13:39
  I've heard it from Tim Connors.
• 13:40
  I've heard it from a few people, but, like, this isn't a thing.
• 13:43
  So it worked because, like, pre seed was so new.
• 13:46
  Like, all of the surface area was available to claim.
• 13:50
  Most people were like, is pre seed a thing?
• 13:52
  By the time we get to fund 3 people, it's like, okay.
• 13:54
  There's precursor.
• 13:54
  There's a 4.
• 13:55
  There's a wonder.
• 13:56
  There are other funds.
• 13:57
  If I'm interested in pre seed, why should I choose you?
• 14:00
  And that happened in 5 years.
• 14:01
  It went from, like, this isn't even a thing.
• 14:03
  Like, I used to get invited to conferences because, like, we were the only pre seed fund.
• 14:06
  People were like, oh, quick.
• 14:07
  We need a pre seed perspective on the seed panel.
• 14:10
  Many things were easy, and now there are many more pre seed funds.
• 14:13
  I don't know.
• 14:14
  I think sometimes the venture capital business is a business that funds risk takers, but is in
• 14:19
  and of itself fairly conservative.
• 14:20
  And I'm just like, guys, like, it's okay if things change.
• 14:23
  If you have a strategy that only worked in those conditions, yes, this is, like,
• 14:27
  unambiguously not good for you.
• 14:29
  But I'm like, the point of the business is to adapt to whatever is on the field, and I feel
• 14:33
  like our job as a fund is to say, okay.
• 14:35
  And we've been doing this over the last year.
• 14:37
  If my hypothesis about where seed is going is right, there's some things we have to do
• 14:41
  differently, but the core job doesn't change.
• 14:43
  It's still about finding great founders, helping them, like, figure out the core
• 14:46
  questions of their business, and setting them up for success.
• 14:48
  It's just that that setting up for success might not mean trying to get a tier 1 VC fund
• 14:53
  to do the series a.
• 14:54
  It might be setting them up to go private, to stay private longer, and to be profitable, and
• 14:59
  to grow, and to maybe sell the PE.
• 15:00
  Like, the skill sets we might need in advising companies could be really different than they
• 15:05
  were before where a lot of it was like, I'm very good at getting you in front of decision
• 15:08
  making partners at these big funds.
• 15:10
  And because that was the glide path for most companies, that was a valuable skill.
• 15:14
  That just might not be what the next 10 years looks like.
• 15:17
  More specific to the event itself, and I've never actually asked you this question, When
• 15:21
  you're in a room surrounded by your peers, some with years behind you, and then maybe a few a
• 15:27
  little more ahead, does it ever become difficult to see others succeed in a time where
• 15:32
  capital becomes harder and harder to come by?
• 15:34
  I feel like you are one of I feel like the stronger mentors within the space for fund
• 15:38
  managers who specialize within precede and seed.
• 15:40
  But as capital kind of constricts, how do you maintain a mindset of we can all succeed
• 15:47
  together when the reality is there will be some funds that will not succeed?
• 15:52
  It's really hard.
• 15:53
  And there have been some speaking opportunities I've turned down because I'm like, I don't have
• 15:57
  a positive message for the people that are gonna be in this room, and I don't wanna lie to
• 16:02
  them.
• 16:03
  It sounds weird.
• 16:03
  I think the nice thing about this year has been I've talked to more people who've made the
• 16:08
  decision on their own that they're not gonna continue, and it's been interesting.
• 16:12
  Some people have said, I like investing.
• 16:14
  I don't like being a fund manager.
• 16:16
  So I'm gonna find a place and a platform where I can write checks and I can help founders, but
• 16:21
  where I don't have to raise capital or run a management company, which I totally get.
• 16:25
  I've met other people who said, I gave venture a shot.
• 16:28
  I did a fund.
• 16:29
  I do not like this job.
• 16:31
  I prefer operating, or I prefer consulting, or I prefer doing something else, and I don't
• 16:35
  wanna do this.
• 16:36
  I have also talked to operators who've been doing it on the side, and they're just like, I
• 16:40
  scratched my itch, and I now know that my postretirement career will not be Venture.
• 16:44
  We talk about the downside of people leaving.
• 16:46
  I think the upside is I have some friends who in 3 or 4 years learned that something wasn't
• 16:51
  for them.
• 16:51
  And if they hadn't done it, they might have devoted 10 or 12 years chasing a dream that
• 16:55
  once they caught it, they might have been like, oh, this isn't what I thought it was gonna be.
• 16:59
  I don't like this as much as I thought I would.
• 17:01
  And so it's hard.
• 17:03
  The other side is I have people who I used to advise and help who, like, they don't need my
• 17:07
  help anymore.
• 17:08
  They're, like, progressed well beyond anything I could do.
• 17:10
  And so that's the part, you know, that keeps me excited.
• 17:13
  I think about the work we do at Screen Door.
• 17:15
  And we fund managers.
• 17:16
  I'm like, those people are gonna be very successful.
• 17:18
  The window of time I have to help influence or advise them is very small based on the rate at
• 17:23
  which they're learning and growing.
• 17:24
  It was hard as I was on stage looking out, and I'm like, some of these people won't be here
• 17:28
  next year.
• 17:28
  The good news is they'll probably be replaced by brand new people.
• 17:31
  I've talked to a few friends who are just like, they've raised 1 or 2 funds and they can't
• 17:35
  fundraise, so they've had team issues that are, like, gonna get in the way of them moving
• 17:38
  forward.
• 17:39
  And I don't wanna see anybody go out of business in venture.
• 17:41
  I do like your perspective that most of the folks who maybe won't go on to raise subsequent
• 17:46
  funds, it will be for the better of their specific personal careers that they can find
• 17:51
  more fulfillment in an area that maybe they wanted to spend more time in elsewhere.
• 17:55
  I mean, the only real reference point I have is I was working in the Internet in the late
• 18:00
  nineties, early 2000, and there were all, like today, so many new venture funds, accelerators
• 18:06
  that, like, were created.
• 18:08
  And many of the people who left venture in that era were never seen in venture again, in many
• 18:13
  cases, by choice.
• 18:14
  Now some people, like, their fun blew up, and they wanted to get back in, and they couldn't
• 18:17
  find the toehold, and they had to go get a job.
• 18:19
  But many people I know were just like, I tried venture.
• 18:21
  It was cool.
• 18:22
  It's not for me, or it's not something I wanna pursue anymore, and they moved on.
• 18:25
  And those people are just like I see them in other walks of life.
• 18:27
  Like, they're still in tech.
• 18:28
  They're still an entrepreneur.
• 18:29
  Like, they're just, like, not in venture.
• 18:31
  Well, we are all out of time for today.
• 18:33
  Thank you, Charles, for joining.
• 18:35
  Thank you for our listeners for popping by.
• 18:37
  Please like, subscribe, and share, and we will talk with you all next week.
• 18:41
  Thank you.
• 18:41
  Bye.