Latest / The Learning Corner by Precursor / Episode #90: Is Series A Broken?, Are Winners Ever Found In Hype Markets?, The Power Of The Builder Archetype

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Episode #90: Is Series A Broken?, Are Winners Ever Found In Hype Markets?, The Power Of The Builder Archetype · The Learning Corner by Precursor

• 0:00
  I think everything feels broken.
• 0:02
  I feel like pre seed and series a labels feel broken.
• 0:05
  Series a feels broken.
• 0:07
  I think it used to be that the goal of a series a investor was to help take this very large
• 0:15
  mass of seed and pre seed stage companies and anoint the ones that had product market fit and
• 0:22
  gives them more capital and help them grow.
• 0:25
  And now it feels like we live in this weird world where there's only five to 10 companies
• 0:29
  that feels like matter every year.
• 0:32
  It's the week of August 10.
• 0:34
  Welcome to the Learning Corner, a Precursor Ventures podcast.
• 0:40
  Welcome to the Learning Corner by Precursor.
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  I'm Mia Farnham, and I'm joined by our GP and managing partner, Charles Hudson, where we will
• 0:46
  be talking through the articles and Goodreads that caught our team's attention over the past
• 0:51
  week.
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  Our first Goodread of the week comes from a post on x by Gil Dibner, and it's a sharp and
• 0:57
  direct take on what he believes is a fundamentally broken series a market.
• 1:01
  The core argument is that series a investors who have historically served as the first real
• 1:06
  scaling capital after a company achieves initial product market fit have largely opted
• 1:10
  out of doing that work in today's market.
• 1:13
  Gil outlined three behavioral patterns that have replaced it.
• 1:17
  Investing way after product market fit is already abundantly clear, investing way before
• 1:22
  product market fit at valuations that do not price risk or accumulating early stage options
• 1:28
  at inflated prices simply to hold positions.
• 1:31
  In all three cases, the essential function of a series A investor determining when initial
• 1:36
  product market fit has been achieved and actively helping a team make the leap from
• 1:40
  inception to growth has quietly evaporated.
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  For pre series a investors like us, this leaves a lot of open ended questions as to how we
• 1:48
  support our portfolio into the following rounds.
• 1:51
  He uses some pretty pointed language to describe the state of the series a market,
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  calling it untethered from reality and saying investors are effectively opting out of their
• 2:03
  core function.
• 2:04
  Charles, how do you see this playing out in real time as companies in our own portfolio
• 2:09
  look to raise their series a and beyond?
• 2:11
  As I was joking with you, I think everything feels broken.
• 2:15
  I feel pre seed and series a labels feel broken.
• 2:18
  Series a feels broken.
• 2:19
  I think it used to be that the goal of a series a investor was to help take this very large
• 2:26
  mass of seed and pre seed stage companies and anoint the ones that had product market fit and
• 2:32
  gives them more capital and help them grow.
• 2:34
  And now it feels like we live in this weird world where there's only five to 10 companies
• 2:38
  that feels matter every year, and those companies attract so much capital.
• 2:42
  It's like, what are you supposed to do if you're not one of those companies?
• 2:45
  And so I've had founders come to me and say, hey.
• 2:46
  I wanna raise a series a round.
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  $20,000,000 series a round.
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  What do you think?
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  I go, I think anything's possible right now.
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  I really do think anything's possible.
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  It's gotten, I think, harder to predict who will be successful.
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  Ironically, it's become easier to predict who will not be successful, and that tends to be
• 3:00
  the companies that have mediocre traction or in markets that are not consensus hot in venture.
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  And it just really feels like in a world where if the business is really there's only 10 names
• 3:12
  that matter from the point of view of LPs, and the whole business is finding those 10
• 3:16
  companies things, graduation rate and, like, filtering for PMF early, they don't matter as
• 3:21
  much because instead of trying to figure out separating, like, the good from the best,
• 3:24
  you're trying to find these, like, very small handful of, like, far outlier companies.
• 3:30
  And so I think it breaks it breaks a lot of the rules and guidance.
• 3:34
  Like, yeah, I had a company in our portfolio who hasn't fundraised in four years, but has
• 3:38
  made good progress coming to me and said, hey.
• 3:40
  I wanna go raise my series a.
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  Here's where I think will be.
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  What do you think?
• 3:43
  I go, there's no way you can raise with those numbers.
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  Those are twenty twenty three, maybe twenty twenty four.
• 3:48
  Numbers today, those won't work.
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  And he said, what do I need to hit to make Oracle?
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  I don't know, but much more than what you just articulated to me.
• 3:55
  And, Charles, in those conversations, is that the point where we talk to founders and talk
• 4:01
  about alternative routes of funding?
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  How can you actually reroute if you've been dealing with benchmarks that are somewhat
• 4:06
  outdated in the past year or so just based on investors alone?
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  I've told most of our portfolio companies, if you don't think you're building a
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  $5,000,000,000 company and it's not clear to investors you're building a $5,000,000,000
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  company, the serious a market is probably going to be close to you.
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  And I know that feels harsh, but pretty much reflects my reality.
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  If you don't have what most people think is already an elite team assembled, it's gonna be
• 4:31
  close to you.
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  So the answer for for most people is the series a market is really not viable.
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  And it's funny.
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  I told a bunch of our LPs, don't I three or four years ago that, hey.
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  Series a graduation rates are gonna come down to 20 to twenty five percent.
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  And they were all like, wow.
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  That's not possible.
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  I said, no.
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  It's just math.
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  And even that was probably optimistic.
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  That actually might be 10 to 15 steady state, and if you back out the AI stuff, it might be
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  5%.
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  So I think in that world, I talk to a lot of companies and say, you have two choices.
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  You can try to read a very fickle VC market, which is kind of reading the tea leaves, or you
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  can take your destiny into your own hands, and you focus on either profitable growth or
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  finding capital providers who don't need companies to go from zero to a 100,000,000 in
• 5:18
  ARR in eighteen months.
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  And those people are out there.
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  They're just not the people VCs have traditionally introduced their companies to for
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  follow on financing.
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  So it is really feels like a whole new world when it comes to advising companies on raising
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  money.
• 5:29
  Yeah.
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  There were comments in the post asking if this signal, so this gap of a need for series a
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  investors in their more traditional jobs is a strong opportunity for somebody to build a
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  strategy around series a right now to just fill in the gap.
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  I have specific thoughts on that because I think it's tough.
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  I'm watching my series a friends really struggle to win deals because people have
• 5:53
  really shifted around their strategy, and you only do so many deals per year as a series a
• 5:57
  fund.
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  If you don't hit the ones that you want, it's really difficult to get yourself over the line
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  to do something that you're half excited about or that of fits your thesis.
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  So I didn't know if you had any specific thoughts on that.
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  If this does mean, oh, somebody could really fill in the gap for series A, I think selfishly
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  for me as a pre series A investor, I'd be like, yeah, we'd love to have you join.
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  But if I'm a series a investor, I don't know if it's a really difficult strategy to just stand
• 6:24
  up and own.
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  I think the problem we have in our business right now, and it's not a problem for
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  everybody, but it's a problem for a lot of firms is we've had a couple of $500,000,000
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  exits even in our portfolio, and people are like, oh, that's very nice.
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  Whereas five years ago, people have been like, great job.
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  Now they're like, oh, that's kinda nice.
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  And I think the perceived scale of winners in venture is so great now.
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  Even with all the air that's come out of SpaceX post IPO, it's still an insanely valuable
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  company.
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  And if you're like, well, if the bar for success isn't a 2 to $5,000,000,000 IPO, if
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  it's really a 500,000,000,000 to $1,000,000,000,000 company, suddenly things sub
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  1,000,000,000 don't really feel like winning.
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  Even though they're winning for the founder, it's gonna change their life.
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  It's winning for a for a sub $100,000,000 fund.
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  When you go in and talk to limited partners about, hey, our strategy is to find a bunch of
• 7:14
  2 to $3,000,000,000 outcomes, Some of them are just gonna say, but the real game is trillions.
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  So why aren't you playing the real game?
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  Is it because you're not good enough?
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  It's because you don't have access those deals?
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  And I think it's really hard to construct a business where there's just a really small
• 7:27
  number of companies that matter.
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  That would suggest if if that persists, that would suggest we actually just need far fewer
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  venture capital firms.
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  We just need fewer of them.
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  We need 10 people who are going to king make the really small set of companies that matter,
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  and that will become the business.
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  And I think the economy and innovation will be far worse for it.
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  Also really good tying to our next read.
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  It's a LinkedIn post from Constantine Buehler over at Sequoia who along with a summer intern
• 7:54
  spent time studying twenty years of hype data sourced from Hacker News.
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  The analysis ranks the most hyped topics on Hacker News for every year since 2007 and
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  places the most valuable company founded in that same year directly underneath it.
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  The observations were very clear.
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  Top companies are almost never born from the hype of their founding year.
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  BNB launched in 2008 when the top top topic was Google, and Anthropic came in 2021 when
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  everyone was consumed by crypto.
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  New trends also appear to announce themselves five to six years before they peak.
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  LLMs cracked the top 15 in 2016 and didn't hit number one until 2022, and AI coding entered in
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  2021 and now tops the list in 2026.
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  The takeaway here is not to ignore hype altogether, but to treat sustained long term
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  attention as the more durable signal since Internet subcommunities tend to be the earliest
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  indication of where things are actually headed.
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  This isn't the first time a piece was published to shed light on this phenomenon.
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  It has thousands of impressions and engagement.
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  But in the end, I sense people are really just wanting to stay on the hype train because it is
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  easier.
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  Why Charles is this such a hard lesson to learn for the venture ecosystem?
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  I think it's because as a venture capitalist, you talk to a lot of different audiences.
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  You talk to a founder audience.
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  You talk to an investor audience, like an LP audience, and you talk to your fellow co
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  investors.
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  And I think it's hard when if everyone else is like, we're all in on x theme, what are you
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  seeing?
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  And you're like, I'm working on something totally different.
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  And people will you don't have anything to talk to your co investors about.
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  Limited partners will go, well, gee, everything I read, like, now, whatever is coming after AI,
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  which by the way, don't think is robotics.
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  Whatever it is, started happening a couple years ago, and a handful of people probably
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  know it, and the rest of us don't yet.
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  But it's really hard to go to LPs and like, I'm spending a bunch of my time in a category that
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  no one else is talking about, that no one else thinks is valuable.
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  And I just think it's so much easier to say, I'm working on the thing that everybody else is
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  working on. To
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  To go to a cocktail party today and talk about your inference or harness or model companies is
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  a lot easier than to go talk about some consumer company that you're investing in that
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  nobody cares about.
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  And so I think all of the incentives in our business increasingly push you to focus on
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  whatever the hot thing is because that's where all the conversations and attention are.
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  And it takes a lot of discipline and patience to stay working on the things that are not yet
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  hot.
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  I think it also takes a little bit of humility if you're an investor to know like where are
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  you finding these trends along their lifeline.
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  You have to have a little bit of humility to ask yourself, am I finding this after the arc
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  and I'm not really gathering the value that this industry is going to accrue?
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  Or did I actually come early on?
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  And I think you've said it.
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  You said it to me like a year ago.
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  I think a good test of this is when you talk to your co investors and you swap deals, you
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  should have a couple in there that your other friend sitting across the table is like, I am
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  not looking at that industry at all.
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  That sounds like a horrible place to place time.
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  And again, there's a range of what makes that acceptable.
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  But I think if all of your deals align every single time with the investors that you're
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  looking at or everyone is looking at the same things, should know it's a little crowded and
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  maybe it's not actually the time to find the winner here, but it's an easier said thing than
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  done, and again, to your comment about LPs, I actually was gonna ask you.
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  Ten years ago, when you were starting Precursor, I assumed that this saying that
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  you're looking at areas that are overlooked that nobody else thinks is interesting is the
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  pitch to be in venture, to be a fund manager.
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  Why do you feel like that's collapsed?
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  I think what's happened now is all the companies we hear about now are actually fairly
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  consensus.
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  They're consensus now, and all of the big firms are in them.
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  So it feels like the business, in quotes of venture now, is find the really big consensus
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  businesses that the multistage funds will pile into and make sure you get to pile in either
• 12:04
  before them or alongside them.
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  And that's all that matters.
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  You know, and as at Uncork, we did we made our investment in DroneDeploy, I think in 2013 and
• 12:13
  Procore just bought it for $850,000,000.
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  That was like not a well understood company when we met those guys.
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  And it took a while, but I was like, I think it was worth it in the end to get a payoff of that
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  scale.
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  And so, I don't know, me, part of the reason everything feels so broken is everybody's
• 12:30
  responding to the same incentives, which is it used to be like, oh, the job of a pre seed
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  investor is to find these really great companies early at low prices so that you can
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  make money.
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  But if the price ceiling is infinite, you you can make a lot of money by being later.
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  So maybe it's not as important to get in at the ground floor.
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  You can get in to to Gil's point.
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  You can get in much later and still get early stage venture scale returns.
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  We are in a very strange new world and venture.
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  I was having a conversation with another investor friend of mine, and being in unicorns
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  or well valued companies that nobody's ever heard of
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  Yeah.
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  And like how do you communicate that to LPs and like still show that there's like value to be
• 13:11
  accrued there?
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  Again, I think the conversation has now turned to how can you be a $20,000,000,000 to
• 13:17
  $30,000,000,000 outcome and beyond if you were talking about SpaceX.
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  But there's so much value that can still be extracted on the lower end.
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  How do you communicate interest or gather interest around companies that are doing very
• 13:31
  well, have all the metrics behind it, but no one's ever heard of it, probably because it's
• 13:35
  not in the hype industry of of today.
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  But, like, they still have the valuations that, like, someone would deem to be important.
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  I think right now if I said, what's more valuable to you as a fund manager?
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  A company that is performing well that no one's heard of or a company that is well known where
• 13:53
  no one has any idea if it will work.
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  I would argue right now, you get much more credit for being in a frontier research lab
• 14:01
  where nobody knows what the product is but that the founders are noteworthy.
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  And, you know, some of these companies are unicorns from day one because they start life
• 14:09
  at a billion dollar valuation.
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  And then you're like, oh, I'm this unicorn.
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  I'm like, well, yeah, you invested at a billion dollars.
• 14:15
  Like, it wasn't like you wrote it up.
• 14:17
  You that's a different
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  Born as a unicorn.
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  It was born a unicorn.
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  A born a corn, whatever you wanna call it.
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  And I think we have companies in our portfolio that are doing great, but they're either off
• 14:26
  theme, off trend, or the other investors in that cap table are not noteworthy.
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  And and I meet with LPs, and they're like, that's oh, interesting.
• 14:34
  And then I'll tell them, oh, this other company we have, I have many questions about it, but it
• 14:38
  has these fancy investors as co investors, and it has these fancy founders with these great
• 14:42
  backgrounds.
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  So much more energy and attention paid to that latter bucket.
• 14:47
  Because I I mean, I am sympathetic.
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  I think a lot of LPs are like, well, what are some shortcuts I can use for companies I don't
• 14:52
  understand?
• 14:52
  If it's a really great company, shouldn't Sequoia or Andreessen or Lightspira or
• 14:56
  shouldn't one of those big multi stage funds be an NLP tell me that.
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  I'm like, that's like not a bad heuristic.
• 15:02
  It's not perfect, but I understand you're looking for shortcuts to better understand
• 15:07
  companies that you don't have time to actually go deep and get to know.
• 15:10
  There's just complete industries that are off table for some of the larger ones.
• 15:13
  Even if you're part of Thorn, even if you're a part of Grunz, those outcomes are not important
• 15:17
  to you.
• 15:17
  Huge.
• 15:17
  But I would still say if you were an LP and you had fund exposure into any of those, you'd be
• 15:22
  excited about those.
• 15:23
  My last question to you is how how much longer do you feel like we're gonna be living in what
• 15:29
  I would call like the hype of this market?
• 15:31
  Do you feel you have like a handful more years?
• 15:33
  Do you feel after a few more consequential outcomes before the end of the year in the
• 15:36
  public markets, we'll start seeing a trough out?
• 15:38
  What do you think?
• 15:39
  I don't know.
• 15:40
  I thought we'd already be done, and we're not.
• 15:42
  And in some ways, we're in this extended cycle where we never really took, in my opinion, a
• 15:48
  meaningful pause after 2021.
• 15:50
  People wrote a few blog posts, but just as we were beginning to say we should do this whole
• 15:55
  SaaS thing in a more sober, responsible way, AI happened.
• 15:59
  And I don't know how long the AI cycle's gonna last, but it feels robotics is already lining
• 16:04
  up to be the next thing to invest in on the backside of whenever people get bored with
• 16:08
  LLMs, inference, harness, open weight, all that stuff.
• 16:13
  As one of my friends said, it just it might be 1999 forever.
• 16:17
  And that is a brain breaking way to think about venture because it means a lot of the things
• 16:22
  don't work as well in a world where the business is.
• 16:25
  Make sure you're on the front edge of whatever hype train is going.
• 16:29
  Hopefully, you you get out and get some liquidity before it's over.
• 16:33
  Just in time to memory hole that, like, know, the the crypto to AI, the robotics pipeline is
• 16:39
  quite robust.
• 16:40
  Yeah.
• 16:40
  And so I fully expect that venture with the scale of dollars that are in it now, it needs
• 16:44
  thematic pools where we can dump lots of money into.
• 16:48
  And so if robotics isn't it, something else, space, defense, something else will rise to
• 16:52
  take its place.
• 16:52
  Well, our last piece is a blog post from Anujaru over at Maple VC titled The Talent
• 16:58
  Arbitrage, and it introduces a founder evaluation framework built around three
• 17:03
  archetypes, the inventor, the builder, and the operator.
• 17:07
  The central argument is that the most iconic founding teams from Apple to Stripe to Canva
• 17:12
  consistently reflect some version of this trio and that the builder, the one who translate the
• 17:17
  ideas into motion and attracts complementary talent to their momentum, is almost always the
• 17:23
  catalyst that enables the other two to form.
• 17:26
  Builders are the hardest archetype to spot because their backgrounds tend to be nonlinear
• 17:31
  and their credentials rarely match the problem that they are solving on paper, which is
• 17:35
  precisely why they get overlooked by most investors.
• 17:38
  Andre argues that the steepness of a builder's learning curve and their ability to attract
• 17:42
  people before there is an obvious reason to join are stronger predictors of a long term
• 17:47
  company creation than any background, network, or pitch quality.
• 17:51
  He makes a really strong case that builders are the most underestimated archetype in early
• 17:56
  stage investing because their stories are super messy and just don't fit that traditional
• 18:01
  pattern matching.
• 18:02
  Charles, does that resonate with your experience meeting founders, especially ones
• 18:05
  that come across our portfolio?
• 18:07
  Just for examples for the listeners, some of the builders archetypes they gave and examples
• 18:12
  of them are Larry Page, Elon Musk, Melanie Perkins, and Bezos and Zuckerberg were tied as
• 18:18
  half inventor, half builder.
• 18:20
  I think most people think about founders as inventors.
• 18:23
  Like, that that's, I think, like, the more common archetype.
• 18:26
  But I think builders are are great.
• 18:28
  If I think about our portfolio, we have a lot of really successful people in that bucket who
• 18:33
  I think really have, like, the skills required.
• 18:36
  Through the end, through those are the most satisfying investments we make are in these
• 18:41
  high potential people where I think you meet them and you're like, oh, this person's going
• 18:46
  places.
• 18:46
  This person has skills, ability, and talent.
• 18:48
  And often cases, the builders have just never been given the platform to show the world what
• 18:53
  they can do.
• 18:54
  So I I tend to gravitate towards those.
• 18:56
  I I like these frameworks.
• 18:57
  They're helpful.
• 18:58
  I mean, I know way back when there was like the hack the hacker, the hustler, the designer that
• 19:03
  was like the three person archetype that you wanted.
• 19:06
  And I think these are helpful frameworks in the end if I think about most of our most
• 19:10
  successful founders.
• 19:12
  They're just kind of these, like, singular unique people with, like, these really
• 19:16
  interesting combinations of skills and personality traits.
• 19:19
  But frameworks are helpful.
• 19:20
  I mean, you meet people trying to figure out how should I think about this person and what
• 19:23
  they bring to the table.
• 19:24
  I remember being on a panel actually recently, and they spoke very openly about seeing deep
• 19:30
  experience in the specific industry that the founder is building with the thing that they
• 19:34
  look for.
• 19:36
  And then we had some discourse because I think that's like the builder archetype, which is not
• 19:41
  that at all.
• 19:42
  I think we've seen it within our own portfolio.
• 19:43
  It's people who've just been like, I have an idea.
• 19:46
  I know how to execute and bring this to life and can live along the range and bring this
• 19:51
  inventor mindset and convert it to real life and then help the operator grow and scale it
• 19:55
  beyond.
• 19:56
  I feel like we've seen that more times than none.
• 19:59
  And one thing they talked about was that builders are the ones who attract talent for
• 20:05
  the future of the company, less so than the inventor.
• 20:07
  And to your earlier point, I think that's surprising to people because you think of
• 20:10
  inventors as the visionary, the people that want to gravitate towards that person.
• 20:15
  But I thought about it a little bit more deeply, and I think if you're somebody who's
• 20:18
  debating leaving their fancy job, of course the inventor can kind of woo you over with their
• 20:23
  beautiful vision, but that builder is the one to be like, let me sit you down and show you
• 20:28
  the roadmap of how this all will work to make this real for yourself.
• 20:33
  I've I've also seen that happen with strong operators as well, but any thoughts on that as
• 20:39
  it pertains to attracting talent?
• 20:41
  One of the conversations I have with a bunch of our portfolio company founders is I think
• 20:46
  inventors are perpetually living in the future, and the danger of living in the future is,
• 20:51
  like, you're seeing things that other people can't grasp.
• 20:54
  And so, I was I often times ask them, who who else is living in the future like you are?
• 21:00
  Because if you can find more people who already are either experiencing or believe what you're
• 21:05
  saying, your life will be a lot easier.
• 21:07
  And part of what makes you special is you're seeing things that normal people don't see.
• 21:11
  And because normal people don't see them, they can both appreciate your value as an inventor
• 21:16
  and be like, that person's also crazy.
• 21:18
  Whereas, I think builders usually have this ability to make things that are still
• 21:22
  futuristic and future oriented feel like they could happen soon.
• 21:27
  They could happen in the context of your career, your lifetime, and that, like, it's
• 21:32
  kind of safe to join, whereas the inventor usually wants to talk just about, like, their
• 21:37
  nirvana and state, which, while important, often can feel abstract, far off, or risky to
• 21:43
  the people who are looking to join the company.
• 21:44
  When you're sitting in pitch meetings, do you feel like you enjoy having the balance of all
• 21:48
  three in the meeting, or do you feel like you need to hear one perspective from each, or do
• 21:52
  you really just want to spend more time with the builder versus the inventor?
• 21:56
  When I think about the startups that I've seen that have suffered when a founder leave, ironic
• 22:00
  it's when the inventor leaves.
• 22:01
  The person who has this commitment to a long term future state of the world that doesn't yet
• 22:07
  exist.
• 22:07
  Usually, when you lose those people, the companies just become more practical, which
• 22:11
  usually in the short term feels great.
• 22:13
  You don't spend as much money on r and d, like, everything's easier, there's, like, less
• 22:17
  tension because you'll have this crazy person pushing you towards this future state.
• 22:21
  And then two or three years from now, you're like, oh, we've, like, lost our vision.
• 22:26
  We've lost our ability to innovate.
• 22:28
  We're, like, super efficient, but we're not creative.
• 22:31
  And I think those inventors play an amazing role in continuing to push the boundaries.
• 22:37
  I think a lot about the criticisms of Apple post Steve Jobs, and a lot of it, I think, was,
• 22:42
  like, there wasn't this inventor energy pushing the company to, like, try and invent new things
• 22:48
  that people could barely conceive of.
• 22:51
  And I think the inventors, they have truly rare archetypes.
• 22:53
  And needed across the entire range of the company, probably.
• 22:56
  It's not just zero to one.
• 22:57
  Well, we are out of time today.
• 22:59
  Thank you, Charles, for joining in.
• 23:01
  Thank you to our subscribers for joining as well.
• 23:03
  Please share with friends, and we will talk with you all next week.
• 23:06
  Thank you.
• 23:07
  Bye.
• 23:07
  Thanks.